The business-split announcement from Netflix regarding moving the DVD business into a separate company from it’s online streaming business last week caught a lot of business analysts, pundits, and more importantly customers off guard. Coming off another shock of raising prices this past summer, many are fuming over the latest maneuver. Why would they want to do this to their customers? Why would you split the clicks and mortar parts of your business?
These answers can be answered if you look at it from Netflix’s point of view, and the streaming media space overall. The only reason one would split the companies is if they wish to make one part or the other desirable for bidders to buy.
It’s being speculated that Netflix is looking to court Amazon to purchase their streaming media business but the local tax ramifications of the DVD business kept Amazon uninterested. With the removal of the DVD business, Amazon doesn’t have to worry about getting bound up in paying local sales tax in states where Netflix distribution centers reside. Furthermore, Netflix has limited capital to pay the exorbinant fees coming from studios whereas Amazon has the cash to make the deals thus providing more content and incentive for studios to be more stream-friendly.
Time will tell if all these assumptions come true, but as of last check Netflix stock was trading nominally up roughly .1% so maybe this speculation is just theoretical bantor.