Fortune: Microsoft should buy Netflix and make Reed Hastings co-CEO with Ballmer

Reed Hastings

There’s been plenty of chatter in recent weeks about why Steve Ballmer should be replaced as CEO. He missed mobile. He screwed up tablets. And he’s been unable to bring the stock back to life. Now, here’s one of the more interesting theories we’ve heard about mixing up the executive ranks at Microsoft. Fortune’s Kevin Kelleher floats a theory that Microsoft should buy Netflix and appoint Reed Hastings as co-CEO along with Steve Ballmer.

It is a wild idea, and it may never happen. But Kelleher makes some interesting points about why the Netflix boss — who also happens to sit on the Microsoft board — might be the right guy to get the software giant back on its feet.

Kelleher writes:

Buying Netflix and installing Hastings as co-CEO would position Microsoft to return to the center of the tech industry. Netflix could speed the Xbox’ transition from a gaming console to a mainstream device connecting TVs to the Internet. Its success in creating a popular, immersive app for tablets could strengthen the appeal of mobile carriers considering Windows Phone 7 as a platform. Microsoft’s investment in Facebook could help Netflix find a strong presence in that social network. And Hastings, who has a deep understanding about the opportunities and obstacles facing cloud-based content, could focus on pushing Microsoft into the future while Ballmer oversees the traditional PC-software businesses.

Hastings, interestingly enough, was asked point blank about running Microsoft a few day ago by journalist Kara Swisher of All Things Digital. Hastings, who founded Netflix in 1997, brushed off the possibility.

“No, I’m going to run Netflix for as long as I do, and then I do a lot of education, non-profit work,” he said.

Microsoft certainly has enough cash in the bank to pull of the deal. It maintained a cash pile of $50 billion at the end of the last quarter, and Netflix’s market value now stands at $13.7 billion.

It would probably have to “pay up” to gobble up Netflix. And that could be a very expensive “talent acquisition.”

Previously on GeekWire: “Chart: Steve Ballmer’s approval rating plummets among Microsoft employees”

  • Jonah

    And would face a 30% hit on the funds as they are repatriated from overseas.

  • Destnaru

    If Ballmer buys Netflix I will drop my subscription immediately.
    It, not that I dislike Microsoft so much,I know they do the best job they are allowed to do.
    It’s because I despise Steve Ballmer.
    He wouldn’t share power either, he is way too narcissistic, for him it’s all Steve Ballmer or nothing.
    That would be the end of Netflix for me, I will go someplace else and I am sure that I am not the only one who hates Steve Ballmer that much.
    I am sure that Reed Hastings is a decent guy, at least he looks like a decent guy and not like a complete freak the way Steve Ballmer does.
    But I guarantee he would be fired immediately by Steve Ballmer.

    • http://www.appatic.com Avatar X

      “If Ballmer buys Netflix I will drop my subscription immediately”

      Good luck with that. your only choices would be going Apple, Google or Amazon then.

    • Guest

      Despise? Narcissistic? Hate? Looks like a complete freak?

      Anagram troll, you have some issues.

  • former employee

    As a former Microsoft employee, I can say categorically that “two in a box” will never work there (there’s no accountability system, and the new person will always be at a disadvantage, since Ballmer has ‘placed’ all of the current presidents). More than this, the company requires STRONG leadership – by dividing it, you imply that neither leader is good enough on their own, which means the layers below the CEOs will just ignore them.

    I think you need some new blood at the top, someone who has publicly been given the authority to terminate ANY president or corporate vice president irrespective of their tenure or popularity.

    This new leader needs to have the substance, savvy, and proven market presence to overcome any resistance. If I were nominating someone, it would be Mark Cuban.

    • Guest

      Agreed with most of your comment. But Cuban? Seriously?!?

      • Guest

        Yeah, I’m not feeling that one either. What about VMware’s CEO? Isn’t he ex MS? Seems to be doing a very good job there. Jon Rubenstein (ex Apple, ex Palm CEO, now at HP) could supply a lot of the missing consumer vision and design savvy, although he seems to be in love with WebOS now and lacks the enterprise background. Or, for a safer choice, why not bring back Jeff Raikes?

        If they really want to shake the place up, Salesforce’s CEO would be interesting. And he’s got all the relevant enterprise background, both traditional with Oracle and now modern cloud. I don’t know that he has the consumer experience, but he certainly knows how to work the media and keep his company’s name in the press in a positive way, unlike Steve.

        • guest

          Steve Sinofsky?  I never worked with him at Microsoft, but his organizations produced great results in Office 2007-2011 and Windows 7.

  • http://www.appatic.com Avatar X

    That is something i have wondered about. What if Microsoft went ahead and bought Netflix and Reed fist became a Microsoft President?  I think that Reed could do a good job as CEO f Kevin Turner does stays as COO. The problem would be if all the Microsoft division  presidents and the top managers would accept him as CEO. That is the question with anyone coming on board to replace Ballmer.

    I think the only way would be with someone with some years in the Company even if it is not right now working for Microsoft, it would have to be someone that had worked in Microsft or was the CEO of a long standing Microsoft Strategic Partner company. Microsoft inner culture kind of demands such prerequisitive for anyone vying to be CEO after Ballmer.

  • http://www.appatic.com Avatar X

    That is something i have wondered about. What if Microsoft went ahead and bought Netflix and Reed fist became a Microsoft President?  I think that Reed could do a good job as CEO f Kevin Turner does stays as COO. The problem would be if all the Microsoft division  presidents and the top managers would accept him as CEO. That is the question with anyone coming on board to replace Ballmer.

    I think the only way would be with someone with some years in the Company even if it is not right now working for Microsoft, it would have to be someone that had worked in Microsft or was the CEO of a long standing Microsoft Strategic Partner company. Microsoft inner culture kind of demands such prerequisitive for anyone vying to be CEO after Ballmer.

    • Guest

      MS’s inner culture is what’s slowly killing it. They don’t need a CEO who will fit in with it; they need one who will blow it up and start over.

      • http://www.appatic.com Avatar X

        Yeah, because someone from the outside will be able to go in and do that in a month right? doing that effectively would take years.

        • Guest

          No, it won’t happen in a month. Yes, it probably will take years. But with the right individual, visible improvements would start appearing almost immediately, and within a year you’d have a positive trajectory. Regardless, it’s the only hope for long term success. Which is why they should have started already.

          • http://www.appatic.com Avatar X

            Until Microsoft loses money or stops growind for 3 straight quarters it is not failing. And Whatever may happens Ballmer still got up to 5 years as a CEO of Microsoft if the rumor of him wanting to stay as CEO for 15 years is true.

          • Guest

            That’s like saying until you go into full cardiac arrest you don’t have a heart condition.

            MS has been failing for at least half a decade, maybe more. Competitors know that. The media knows that and has reported on it extensively. And the market has been telegraphing that for years via the stock price.

            If Ballmer is still CEO in five more years, then MS will never be a leader again and may not even be a long term industry survivor. But I doubt he will be. He had already been living on borrowed time for years. But his complete failure to correctly assess the competitive impact of iPhone and then in identical fashion iPad, combined with MS’s subsequent ridiculously slow response (which in addition to allowing Apple to solidify their lead and extend it, had the side effect of allowing Android to enter both, pass MS, and establish a now formidable presence), has finally started the countdown clock on his term as CEO.

            Unless he pulls off a miracle turnaround in mobile and tablets by next year, which is exceedingly unlikely, he’s gone. But hopefully shareholders will through him out this year, thereby giving the company a one year jump on recovery.

          • Guest

            through>throw

            My bad.

        • Guest

          No, it won’t happen in a month. Yes, it probably will take years. But with the right individual, visible improvements would start appearing almost immediately, and within a year you’d have a positive trajectory. Regardless, it’s the only hope for long term success. Which is why they should have started already.

  • Guest

    I’ve seen a
    lot of stupid ideas on how to fix MS over the last five years. And all are moot
    as long as the board continues to argue with the rest of the world and pretend
    Steve has done a good job, even as the company becomes more irrelevant and its competitive
    position more concerning with each passing month. But this one is especially
    stupid.

    Co-CEOs?
    Let’s think about this practically for a moment. When Reed, with almost no
    shares in MS, decides he needs a large chunk of cash and R&D to buy/develop
    future idea n, and goes in front of MS’s board, which is to say Bill, where’s
    he competing for resources against legacy CEO Ballmer, the #2 individual
    shareholder, and Bill’s buddy since Harvard, who is Gates to side with?

    When he
    wants to boot out all the underperforming deadwood within his new sphere of
    influence, all of whom owe Ballmer for their position and  subsequently beg him to intervene, who’s going
    to back down, Steve or Reed?

    Or let’s
    talk economics. Netflix trades for a PE of 75. At that PE, the market values it
    at $14B. MS, due to Ballmer’s decade of failure, now sports a pathetically low PE
    of 9. At a 9x, Netflix’s $14B would suddenly turn into $1.7B when counted as
    part of MS. That’s if you’re lucky. If you’re unlucky, and shareholders hate
    the deal, then it’s quite likely that MS will shed Netflix’s entire market cap and
    then some once news of the deal breaks. And of course to buy Netflix you’d have
    to offer at least a 20% premium. Worse, if MS has to fund that by pulling money
    from overseas, which they likely would, that money carries a 30% tax
    obligation. So now we’re talking about turning $22B of cash on the balance
    sheet into less than $2B of incremental MS market cap, assuming the best case
    scenario. Compared to that, even Skype looks like a bargain (and
    it wasn’t).

    The only
    solution for MS is to fire Ballmer. Although he could be an asset in a non-CEO
    role, as he was previously, asking a new CEO to take charge with him still in
    the background isn’t viable (Jack Welch 101). Then fire the entire useless
    board who left him in power for MS’s “lost decade”. You’re probably forced to
    retain Gates, but he needs to be marginalized by having a new CEO and board
    with strong external shareholder backing. Then you need that new CEO. I’m not
    convinced they have to be a visionary, although that would be ideal. But they
    at least have to be able to assess the best path forward given the mess they’ll
    inherit, and then ruthless about executing that regardless of short term cost,
    which will be substantial in terms of layoffs and restructuring charges.

    With the
    right person and a ton of luck, maybe five years from now MS might reemerge as
    a leader. Or at the very least maybe a long term industry survivor, which isn’t
    at all assured currently.