Wednesday, July 15, 2009

Amazon To Buy Netflix???

Bloomberg is reporting that the price of Netflix shares jumped on Monday on speculation that Amazon may be planning to buy the mail-order movie service.
“There’s heavy call buying and the stock is up on renewed takeover talk, with Amazon being mentioned specifically,” said Fred Ruffy, the senior options strategist at, a New York-based provider of options market analysis.
Netflix is the largest mail-order movie service in the United States with more than ten million subscribers.

A security analyst was quoted in the Bloomberg report saying that Netflix is an "unlikely target for Amazon" because it has distribution centers all over the U.S. Those distribution centers would mean that Amazon would have to collect sales tax in each state where one existed.

Readers of this blog may remember that Amazon ended up suing New York State back in May, 2008 because that state instituted a law the previous month that demanded online retailers collect sales taxes whenever they made a shipment to a resident of New York.

I did a post here in which I disagreed with Jane of Dear Author. Jane was supporting Amazon's stance in the lawsuit. My take on the situation was that:
Bookstores located in New York are paying the sales tax. Amazon is not, giving Amazon an unfair competitive advantage. If the bookstores are forced to close due to lagging sales, staff will be laid off, money will be lost to the local economy. The law says if Amazon uses local websites for click-throughs, they need to pay the tax. I think it's right.
In January, 2009, Reuters reported that "A New York judge . . . tossed out a lawsuit brought by Inc that challenged the state's right to collect sales tax from out-of-state Internet retailers."

Actually, the judge threw out two lawsuits--the one by Amazon and another one by

What's interesting is that just a couple of weeks ago, Forbes reported that Amazon had "notified associates in Rhode Island and Hawaii that the company was no longer working with them . . . because [those] states have passed laws to collect sales taxes on these transactions." Shortly afterward, Amazon also cut off their associates in North Carolina.

So, on the one hand, we have Amazon shutting down those associates in states where such sales taxes are being collected, but, on the other hand, we're hearing that Amazon is thinking about buying a company that has distribution centers all over the country which would trigger such sales taxes.

Neither Netflix nor Amazon would comment on the speculation of a deal.

Stay tuned for more . . .

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