Should Verizon Acquire Netflix?

The rumors that Verizon

will attempt to acquire Netflix

have begun. But is it a worthwhile investment or a colossal mistake?

Not surprisingly, the rumors stem from Verizon's presumed (though still not confirmed) goal to create a

. While concrete details have yet to be announced regarding Verizon's forthcoming venture, one of the early assumptions was that the company would produce a small-scale video service that focused on one specific area of content. But this latest rumor suggests that Verizon wants to go a bit farther and launch a full-scale video service, one that could compete with Netflix – or, if the acquisition rumors prove to be true, one that could actually be Netflix. Verizon would gain a lot from the acquisition. While Netflix has lost more than half of its value,

, and paved the way for a

, the company remains a strong brand in streaming video. In the months since Netflix's decline,

has emerged. Hulu continues to grow, but with its TV-centric platform, most consumers consider it to be vastly different from Netflix, and not a competitor in the same realm. Thus, Netflix is still a very strong company – almost as strong as it was a year ago, at least in the eyes of streaming video customers. But from a cost perspective, Netflix is relatively inexpensive. Verizon could swoop in and acquire the biggest and most powerful name in streaming video for a fraction of what it would have cost six months ago. That's huge. By acquiring Netflix today, Verizon would gain immediate entry into the streaming video industry. It wouldn't have to work hard to build a platform from the ground up because Netflix has already done all of the work. It would allow Verizon to focus on its marketing muscle – and its enormous reach with customers – to push the service in ways that Netflix never could on its own. It would also mean that Netflix's chief executive would have to

or face the wrath of Verizon's board of directors. Who can put a price on that? Verizon could open doors for Netflix by expanding its reach with mobile consumers. It could become the leader in mobile streams by offering exclusive content to Verizon customers, initially at no extra charge. With all of these benefits, you might think that Verizon should acquire Netflix as soon as possible. According to an investment banker who spoke to

, the company is very serious about making an acquisition. But CNBC's David Faber said otherwise. “Not sure what bankers anyone is talking about, but word I get is that no one at Verizon has ever discussed buying NFLX with anyone,” he

this morning. By now, this tweet has been passed around the Internet, but members of

heard the news as soon as it broke, allowing them to react accordingly. Whether Verizon is serious, clueless, or simply laughing at the prospect that it would consider making an acquisition, let's consider the impact it will have on the streaming video business. Right now, the primary streaming video companies – Netflix, Hulu, and YouTube – have no direct connection to the cable industry. While Comcast

came

to encroaching on Hulu's freedom, the

reported in January that the cable giant had to relinquish its power as part of the agreement to acquire NBC. Taking this into account, Verizon should

be allowed to acquire Netflix. Though most consumers think of Verizon as a wireless communications company, the company also operates a small cable service called FiOS. But even if the rules bend in Verizon's favor (if necessary, the company could argue that FiOS is much smaller than Comcast), there is still one problem: consumers. They won't do anything to impede a Verizon/Netflix merger, but they should. And they most certainly would if they knew the problems that a merger like this could cause. Verizon is the king of price hikes. The company may not be as bad as Comcast or AT&T

, but it still loves any excuse it can find to raise our rates. Though you can't find more than

who applauded Netflix for raising its rates, if Verizon is allowed to take control of the company, you can be sure that additional price increases will be right around the corner. Then there is the issue of content restriction. If Verizon controlled Netflix, what would stop the company from gradually shifting Netflix content to FiOS? Verizon wouldn't acquire Netflix with the goal of charging a monthly fee of $8 alone; it would do so with the goal of charging consumers pay TV prices for the same streaming service. Verizon may accomplish this goal through

price increases. In either circumstance, our monthly fees would go up. That's not the only thing consumers have to worry about. M&As tend to inspire other mergers and buyouts. Thus, if Verizon is allowed to gain control of Netflix, Hulu will once again become an

. Finally, there are a few negatives baked into this acquisition that have nothing to do with consumers. First of all, the Verizon that we know and love (or hate) is not yet prepared to take on a venture of this magnitude. Second, if Netflix's value continues to decline, Verizon might be left with a dying entity. Third, Verizon is not prepared to run a mail-order DVD business. Fourth, any streaming video strategy Google

introduces will likely be stronger and more thoroughly planned out than Verizon's venture. Last but not least we have a potential conflict with Apple

, a company that is now a vital part of Verizon's bottom line. Apple is

into the realm of streaming video distribution. Many analysts expect the company to launch its own streaming video service (possibly one that lets you pick individual channels) with the company's first TV in 2012 or 2013. Apple wouldn't like the idea of Verizon, a trusted partner, buying a video service that could one day pose a threat to the company's own efforts. In the long run, Verizon might not care about Apple's reaction. Personally, I would prefer that corporations stop sucking up to Apple and perform as they would if the Mac maker didn't exist. But this is just one of many risks Verizon would be taking if it decided to acquire Netflix.

Aside from a minor dip during the spring and summer, Verizon has been doing fairly well this year. And over the past two weeks, the company has been experiencing an upward trend. Verizon's core business seems to be pretty stable, thus:

Investors only seemed interested in diving back into Netflix when a Verizon buyout was on the table. Now that the buyout appears to be nothing more than a rumor, investors are pulling back, which means: