Netflix Would Love This Deal

There's a movie merger underfoot, and Netflix (Nasdaq: NFLX  ) can't wait to see signatures on the dotted line.

No, nobody is buying the subscription-style movie rental pioneer. The rumor mill might have you believe that Google or Apple would swoop in and pounce on the cratering share price to get an instant rental solution on the cheap.

But the Netflix board would be crazy to accept a lowball offer here, and investors should see the long-term value beyond these short-term issues as well.

A hostile takeover would be difficult, too -- Netflix runs a classified board and has authorized the use of "blank check preferred stock" defenses. Netflix currently has about 55 million shares outstanding, or 58 million assuming that the new financing converts into shares. Suddenly adding 10 million preferred shares with enhanced voting rights would change the takeover games in a hurry.

And though the business runs from Los Gatos, Calif., the company is incorporated under Delaware law, which means that a hostile bid would take at least three years to run its course.

Mark my words -- this stock won't be cheap anymore three years down the road.

So no, this isn't about a Netflix buyout, hostile or otherwise. Bloomberg's secret sources say that Summit Entertainment is in merger talks with Lions Gate Entertainment (NYSE: LGF  ) .

Privately held Summit is best known as the studio behind the Twilight blockbuster franchise, which has grossed $1 billion domestically and $2.3 billion worldwide. One Twilight film is currently in theaters and adding to that score, and there's another coming next year.

So why would Netflix love to see this merger happen? Because the company gets to stream Lions Gate films through its deal with the Epix cable channel. That five-year contract has nearly four years remaining, which should cover the useful life of the Twilight content.

Look, this is not great cinema or even a good story. But the vampire-werewolf melodrama strikes a nerve with youngsters, and it's a cash machine. The minute Netflix can advertise that Jacob and Edward get to fight over Bella through its streaming service, teenage begging will commence all over the nation. I mean the kicking and screaming kind.

Yeah, Netflix wants that to happen as soon as possible. It's not a slam dunk, as media watcher Nikki Finke notes: "All the discussions are preliminary and speculative and could easily fall apart." But I'm keeping a close eye on this potential deal -- just click here to do the same by using our handy watchlist feature.