The video streaming subscription business model that Netflix Inc. (Nasdaq: NFLX) helped pioneer is why Wall Street is so in love with the stock, but it's also why the company is a prime acquisition target.
And while the company's $27 billion market cap greatly narrows the list of potential suitors, the companies with the most to gain from buying Netflix also happen to be some of the wealthiest on the planet.
We're talking about the titans of tech, each of which has cast a covetous eye on the television industry as it goes through the same transition to a digital model as did music and publishing.
To name names: Apple Inc. (Nasdaq: AAPL), Google Inc. (Nasdaq: GOOG, GOOGL), Microsoft Corp. (Nasdaq: MSFT), and Amazon.com (Nasdaq: AMZN).
Even for a company with deep pockets, however, acquiring NFLX would be a major deal. What would justify shelling out tens of billions of dollars (a premium would put any offer price north of $30 billion) to buy Netflix?
Why NFLX Is a Plum the Tech Titans Would Like to Buy
A deal for Netflix would give the acquiring company a huge edge in the battle to dominate Internet-based delivery of video content.
Netflix, you see, has quietly become the 800-pound gorilla of video streaming.
Its U.S. subscriber total passed that of HBO last year. In August, Netflix Chief Executive Officer Reed Hastings bragged that his company had passed HBO in subscriber revenue.
And get this: According to Sandvine Corp, Netflix accounts for more than a third (34%) of all Internet traffic in North America during the peak evening hours, a figure that has been rising for several years.
Google's popular YouTube service came in second with just 13%.
But that's not all. Netflix collects and analyzes everything that its subscribers do. And we mean everything - not just what they watch and where they watch (on a TV, a smartphone, etc.) but where they pause or rewind a show.
All of that data gets crunched into a predictive algorithm that can suggest to subscribers other content they might like.
NFLX isn't just a master of video streaming - it's a master of Big Data, an area many consider the next great frontier of technology. If you're a tech titan, this matters. A lot.
Now here's a case-by-case look at the prospects for each of the tech giants to buy Netflix.
Who Will Buy Netflix - The Top Four Candidates
Apple Inc.
Cash: $164.5 billion
Many expected Apple to introduce some sort of disruptive television product or service more than a year ago, but so far we've only seen updates to its Apple TV set-top box. The company is thought to be having trouble securing deals with content providers, who are probably wary of how Apple seized control of music distribution a decade ago. Buying Netflix, with its large subscriber base and array of content deals, would help remove this roadblock.
And as the world's most valuable company with $164.5 billion in cash, Apple can most easily afford to buy Netflix.
Netflix is already available on the Apple TV, and episodes of the company's original content such "House of Cards" can be purchased on iTunes. Finally, Apple has a robust server network if it chose to take on the cloud services aspect of the business, which NFLX currently farms out to Amazon.
All that said, Apple is the least likely to pull the trigger on a NFLX deal. The company has typically avoided megadeals, although the $2 billion acquisition of Beats Electronics in May could have signaled a shift in the thinking in Cupertino.
Amazon.com
Cash: $8 billion
Rumors that Amazon is looking to acquire NFLX go back for a decade, and maybe Amazon should have taken the plunge back then when the company was much more affordable.
Since Amazon's streaming video service competes with Netflix, buying the company would eliminate a chief competitor. Plus, it would triple its content offerings and establish Amazon as the video streaming leader. Amazon has also started dabbling in creating original content, an area where Netflix has had much success.
As noted above, Amazon already has a strong connection to Netflix in that all of the company's streaming goes through Amazon's Web Services. And certainly CEO Jeff Bezos has shown he's bold enough to make the deal.
But it would stretch Amazon to the limit financially, and given the company's heavy spending on building out its infrastructure over the past few years, a deal for NFLX just might be too much of a stretch.
Microsoft Corp.
Cash: $85.7 billion
Microsoft doesn't have content streaming services of its own, so a Netflix acquisition would be an added business. But Microsoft could use the combination of Netflix and Xbox to create a cutting-edge interactive television service.
It would also help enhance Microsoft's presence in the consumer space, which has been shrinking with the duopoly of Apple and Google dominating in mobile.
As for connections, Netflix CEO Reed Hastings once served on Microsoft's board, so he knows the company well. And, as with Apple, Microsoft could elect to use its own cloud services to bring the Netflix streaming in house.
Microsoft has more than enough cash, and new CEO Satya Nadella's recent $2 billion purchase of "Minecraft" game maker Mojang shows he's willing to make the unconventional deal.
Google Inc.
Cash: $61.2 billion
With mountains of original content being produced daily on YouTube, having Netflix to help promote and monetize it would be a powerful combination. Best of all, the types of content on both are different and complementary.
Google has edged into video streaming in other important ways, too. Its $35 Chromecast device allows users to access online videos from a number of apps, including Hulu, HBO, and, yes, Netflix.
Google is also experimenting with its own television/Internet provider network, Google Fiber, which the company bills as 100 times faster than the average U.S. broadband speed.
A Netflix acquisition would greatly speed up Google's television ambitions, and would be a perfect fit with the company's related ventures.
In fact, of the four tech titans, Google may have the most to gain from a NFLX deal, which is why we think it's the most likely company to buy Netflix within the next couple of years.
Follow me on Twitter @DavidGZeiler.
UP NEXT: One of the positives about owning Netflix stock is that an acquisition deal would drive up its stock, but that's not the only reason to own NFLX. Here's why Netflix stock is cheaper than it looks...
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.