Yesterday, shares of Netflix got their semiregular rocket boost–with its stock up more than five percent to close at just over $42–from rumors that Amazon was interested in buying Netflix.

Oh, it’s a seemingly dreamy match–the top online retailer snapping up the upstart U.S. mail-order DVD movie and television show service.

But the speculation completely ignored the giant price needed to buy the Silicon Valley-based Netflix (NFLX)–well above its current $2.43 billion market cap, to be sure–which would be a big chunk of Amazon’s $35 billion valuation.

And it also leaves out the nearly impossible tax problem Amazon (AMZN) would acquire if it ever bought Netflix, given that Netflix has many U.S. distribution locations for its subscription rental business. Amazon does not like paying state taxes and avoids them carefully.

Instead, those interested in seeing the independent company in the embrace of a larger one might want to consider a more suitable and very interested candidate: Microsoft.

Neither Microsoft (MSFT) nor Netflix will comment about such a hookup.

But several sources close to Microsoft told BoomTown that that the partnership between Netflix and Xbox Live to allow users to watch movies and TV episodes on the Xbox 360 device–struck exactly one year ago today–is going like gangbusters, with one saying it was “en fuego.”

Very loosely translated: On fire.

So much so, several sources said, that Robbie Bach–who is president of Microsoft’s Entertainment and Devices division, which includes the Xbox business–has been meeting with Netflix CEO and co-founder Reed Hastings (pictured) in recent weeks about what else the pair can do together to expand its current partnership.

The deal already in place between them is a hit, according to sources at both companies.

It gave Netflix access to 12 million Xbox members and handed Microsoft what has turned out to be a very popular application and an unusually successful joint effort.

While an acquisition would be a much bigger move, some at the software giant think it would necessarily be such a bad one for Microsoft, which has long been seeking to forge better ties in the entertainment arena.

Many of Microsoft’s major Hollywood forays over the years have been duds. So, stronger ties with Netflix–even a more robust partnership, at the very least–would give it a more definitive video strategy most think it lacks.

Its archrival, Google (GOOG), has been trying–with similarly lackluster impact–to accomplish the same results via its pricey and money-losing YouTube unit.

But Netflix–which has an office in Beverly Hills, as well as Los Gatos, Calif.–has much better relationships with the industry there, mostly because it has become such a big buyer of DVDs as it has grown its business (see charts below of subscriber and revenue growth; click on them to make them larger).

In addition, it has added more subscribers than ever in the last year and is solidly profitable, mostly due to sending consumers all those DVDs in little red envelopes.

And while a lot of execs at Hollywood studios that Netflix does business with have been wary–and told me so in no uncertain terms on my recent visit to Los Angeles–about its entry into the digital video delivery business, they have also been thrilled with the checks that Netflix has been writing them since it was founded more than a decade ago.

But, it is that main DVD business that Hastings, in a recent interview with The Wall Street Journal recently, has said is “doomed.”

Noted the article:

“As soon as four years from now, [Hastings] predicts, the business that generates most of Netflix’s revenue today will begin to decline, as DVDs delivered by mail steadily lose ground to movies sent straight over the Internet. So Mr. Hastings, who co-founded the company, is quickly trying to shift Netflix’s business–seeking to make more videos available online and cutting deals with electronics makers so consumers can play those movies on television sets.”

With Internet video still in its infancy–and barely in gestation in terms of any viable business model–Netflix might indeed need help, especially since Hollywood has been slow to give it rights to more movies for online distribution.

That will be increasingly troublesome, given that digital delivery is the way consumers are headed. According to the Journal story, over 20 percent of Netflix members now use the streaming service.

But it only has about 12,000 titles–mostly older films–licensed on its online service, compared to 100,000 DVD rental titles.

That’s because, for now, much more powerful pay channels usually win out over Netflix in these online video distribution wars, which also include Amazon and Apple (AAPL), along with many others.

Thus, even with a strong and unusually long-term executive bench, the close-knit Netflix will still be facing a major battle in moving in a direction it must head in sooner than later

Such an epic journey could be easier for Netflix with a powerful ally like Microsoft.

One more interesting link would make such a relationship even smoother: Hastings is also on the board of Microsoft, having joined in 2007.

So, the savvy and innovative entrepreneur–well-known for his close-to-the-vest dealmaking and eager to not miss a key turn for his company–might very well decide to keep friends very close.

Here’s a longish video BoomTown did over the weekend at the 2009 Sundance Film Festival, the famous annual independent film gathering now taking place in Park City, Utah.

I was there to moderate a panel on Saturday titled, “Where Do We Go From Here? Icons of the Digital Age.”

It was a great session, with a lot of insights as to where things are headed in the online video space and how that would impact the movie industry. Main conclusion: Significantly.

The trio of panelists were: Chad Hurley, the co-founder and CEO of the Google (GOOG) video service, YouTube; Jason Kilar, CEO of Hulu, the premium online video service that is a joint venture of News Corp. (NWS) and GE (GE) unit NBC Universal; and Reed Hastings, founder and CEO of Netflix (NFLX), the largest online DVD rental service, which has been moving into an ever wider range of distribution of movies on the Web. (News Corp. is the owner of Dow Jones and this Web site.)

I did interviews with each of them, as well as a chat with my only indie celebrity friend, Jane Lynch, some scenes from the festival and an intro and outro from my own little stars, Louie and Alex Swisher.

Here’s the video:

BoomTown is headed to the 2009 Sundance Film Festival today, an annual journey I make to moderate panels about the tech industry.

The festival officially opened yesterday in Park City, Utah. And while still largely a confab of independent filmmakers, Hollywood deal types and various celebrities rifling though swag orgies, a lot of geeks are there too.

Since Sundance also has taken a keen interest in all things digital, ATD moves its HQ there for a few days every January, to the New Frontier on Main digs, to talk to those gathered–for what have become standing-room-only events–about whither tech and how and when it is eventually going to eat the entertainment industry’s lunch.

Oh yes, my friend: Silicon Valley will eat lunch in this snowy town again!

And for good reason, given that the entire movie industry has long worried about how digital distribution will impact its business, especially as every year, the encroachment continues at a relentless pace.

This year, we’re going even more futuristic, with a panel tomorrow at noon titled, “Where Do We Go From Here? Icons of the Digital Age.”

In fact, the panelists are that: Chad Hurley, the co-founder and CEO of the Google (GOOG) video service, YouTube; Jason Kilar, CEO of Hulu, the premium online video service that is a joint venture of News Corp. (NWS) and GE (GE) unit NBC Universal; and Reed Hastings, founder and CEO of Netflix (NFLX), the largest online DVD rental service, which has been moving into an ever wider range of distribution of movies on the Web. (News Corp. is the owner of Dow Jones and this Web site.)

Here’s the panel description:

“Remember the world before the Internet, email, and cell phones? Now we try and picture it 15 years from now. If we are currently in the greatest information revolution since the printing press, what can we expect next? How will media, entertainment, and our digital lifestyles change? This roundtable assembles visionaries of the digital revolution to discuss the limits of our imagination.”

It should be an interesting exercise in creative prognostication, although I for one cannot remember the world before the Internet, email and cellphones.

I am also dragging my two young sons there, along with ATD majordomo Ed, so expect lots of filming of our own, with my shaky Flip Mino, to be posted all weekend.

Until then, here’s one of the two videos I did last year, including an interview with MySpace co-founder Chris DeWolfe and a visit to the trendy party he threw on Main Street with my celebrity friend Jane Lynch as tour guide (and she’ll be back this year for another special guest star appearance!):

When he debuted his company’s new DVD copier at DEMOfall recently, called RealDVD, RealNetworks’ Rob Glaser did a video interview with BoomTown about it.

And now that RealNetworks (RNWK) and Hollywood are cross-suing each other over RealDVD–in the latest clash over the still-contentious copyright issue that separates the tech and entertainment industries–it’s time for a replay!

The RealDVD software allows a user to rip all the parts of a DVD, including cover art, onto a computer. It costs about $30.

Hollywood studios, which filed a lawsuit in federal court Tuesday, maintain that RealDVD is illegal, and one of their reps called it “StealDVD.”

Haw, haw. This is what apparently passes for clever in Hollywood these days.

But before the entertainment giants’ lawsuit, RealNetworks filed its own suit, claiming it was protecting the fair-use rights of consumers to make copies of content they had purchased.

To avoid violating digital rights management schemes, RealDVD has added its own DRM layer, preventing ripped DVDs from being copied and shared and imposing further barriers to piracy.

But there are still possibilities for illegal ripping, of course, because RealDVD users must promise not to copy videos they don’t own.

No surprise–an honor-system product that makes it even easier to copy DVDs was not exactly welcome by Hollywood, which has been trying to protect its movie revenues from suffering the same fate as the music industry via rampant CD-ripping.

Thus, the typical mainstream media reaction to the inevitability of consumers wanting to digitize content: More lawsuits!

In any case, here’s the video of Glaser talking about RealDVD:

At DEMOfall yesterday, RealNetworks’ Rob Glaser chitty-chatted with BoomTown about a lot of things, such as the Presidential race (he is a big Obama supporter), his twins and more.

But in this video interview, Glaser talked about RealDVD, the company’s new “legal” DVD copier, which was launched here in San Diego yesterday.

At an introductory rate of $30, buyers can use the software to rip all the parts of a DVD, including cover art.

To avoid violating digital rights management schemes, RealDVD adds its own DRM layer, preventing ripped DVDs from being copied and shared and imposing further barriers to piracy.

But there are still possibilities for illegal ripping, of course, because RealDVD users must promise not to copy videos they don’t own.

Thus, an honor-system product that makes it even easier to copy DVDs might not be so welcomed by Hollywood, which has been trying to protect its movie revenues from suffering the same fate as the music industry via rampant CD-ripping.

Here’s the video of Glaser talking about RealDVD: