What kind of movie is this, anyway? At first The Netflix Story was an excellent thriller (for viewers able to suspend disbelief in such things as valuation). The stock rose inexorably until mid-2011. The plot turned to horror after an ill-timed price increase, an insane rebranding effort and a pricey foray into new markets. The stock crashed in 2011's second half. One last shock came in 2012, when the company missed its subscriber growth target.
Now the screwball comedy phase has begun. It came out last week that activist investor/lovable goofball Carl Icahn had bought about 10 per cent of Netflix stock. He argues that Netflix is undervalued and could be of interest to a bigger acquirer. Mr. Icahn is probably wrong if he thinks the shares are too cheap. But, given low entry barriers and the economic interest content makers have in keeping first-rate programming off Netflix, he may be right that the business is worth more to a company using video streaming as a customer retention tool (as Amazon does) than on its own.
Netflix's response to Mr Icahn was to institute a poison pill defence designed to dilute anyone acquiring more than 10 per cent of the shares. This is silly. Netflix, with its shares down 75 per cent from their peak, is in no position to discourage activists and if Mr. Icahn thinks he can find a buyer willing to pay over the odds, terrific.
So, one hopes, in the next reel the movie becomes a romantic comedy. Netflix may not be interested in love but, hopefully, that will not stop a rich, bumbling suitor (Microsoft?) from declaring that it cannot live without video content to augment its other offerings, prompting an irresistible offer. The alternative is that the defensiveness of Netflix's management and board leaves it with nothing to offer investors but a snazzy song-and-dance number before the lights, at last, come up.