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.

BoomTown has been an unabashed fan of Pure Digital’s Flip digital video cameras since we debuted them at the D: All Things Digital conference in 2005.

And I have used the nifty device on this site since for my shaky-tastic video extravaganzas.

Yes, Pure Digital’s CEO Jonathan Kaplan (pictured above) is to blame!

Now, Kaplan has gone and sold Flip off to Cisco (CSCO) for $590 million in stock.

Sources said that Pure Digital–this corporate name will go by the wayside, by the way–had also chittered-chatted with Sony (SNE) and Hewlett-Packard (HPQ) about such a possibility.

That’s pretty good company for Pure Digital, considering it started as a white-label product, shrink-wrapped for theme parks and drugstores.

But the simplicity of its line of relatively inexpensive cameras, including the recently released Mino (seen below, and also sold in a high-definition version), has made it a huge consumer success, which is no easy task in the devices arena.

With Flip software, a user can plug the unit into a USB port of a computer to upload digital video easily. Flip models cost anywhere from $100 to $299.

Spot-on simplicity and a no-brainer feel have made them into the most popular such devices around, and in a very short time.

But, although it got $68.2 million in funding since its founding in 2001, taking all that innovation and success and truly turning it into a global brand was a much longer and more expensive slog for the San Francisco start-up.

Hence, a sale to the bigs.

Pure Digital is probably a good fit for Cisco, which has been trying to turbocharge its consumer-focused business, especially in home networking, and the move is a clear step in that direction.

In the integration, Cisco has made the Flip team part of ypuCisco’s Consumer Business group, and Kaplan will become general manager of the combined organization.

What comes next for Flip could be interesting, including the addition of social-networking and streaming features, which would dovetail well with Cisco’s other investments in consumer networking.

But most of all, it’s a nice ending to a very sharp company that makes a great product. Introducing a new consumer electronics device into the world is no small task and, clearly, Flip deserves the much bigger stage it is set to get.

Here’s my video interview with Kaplan, about Flip’s history and future:

But–as many readers have requested–they will all be available in their entirety in this column.

Here’s Part 4 of 4 of an interview Walt Mossberg did with Amazon’s President, CEO, Chairman and, oh yes, Founder, Jeff Bezos. (I posted one video part of the discussion with Bezos every day this week, starting Monday and concluding today.)

The e-commerce giant seems to be firing on all cylinders of late, along with making some innovative moves, such as the recent introduction of its e-book reader, the Kindle.

In this video, Bezos takes questions from the audience about digital rights management and other issues about the Kindle, and about streaming videos.

A lot more than settling a strike, I would posit.

A lot has been written about the writers’ strike in Hollywood, which is officially over after three acrimonious months with the overwhelming vote by the members of the Writers Guild of America to accept a contract it hammered out with the entertainment studios.

Writers will presumably be back at their keyboards today.

The toll? Hundreds of millions of dollars in lost revenues and no new episodes of “Heroes” (what will evil Sylar do now that his powers have returned?), all over how writers should be paid for content that appears online.

That there is precious little money being made online by anyone does not seem to have mattered, as the struggle metastasized into a symbolic battle over all the wrenching changes that digital technologies have made on the industry and are sure to make even more significantly in the future.

Writers, most of all, understand a dramatic narrative, and this one tells the tale of their work being digitized and downloaded without a lot of reward or control. It is a familiar story to them, of course, as technology after technology has not been kind to them.

In this three-year deal, victory was declared when the writers did get a percentage of the revenue from fees paid to stream their work on the Web.

Sorry to be a downer, but those fees will always and forever be peanuts, even if getting a percentage (rather than a residual) is seen as a win.

That’s because the big bucks in online content must come from advertising, which the writers will not grab a piece of at this point, if ever.

And if you think the creation of original online content is in its nascency, and it is, the robust business models around how to pay for it are even more stillborn.

Of course, there is money here and money there–some from items purchased, some from sponsorships, some from basic CPM economics.

But it is all very tentative and small now and advertisers are still not springing open their wallets with the kind of money they are used to spending on television.

And why should they? It is safe to advertise there, despite dwindling audience, wherein quality online content has so far shown itself to be very uncertain.

While there is an occasional errant hit of the most basic kind (Funny or Die’s “The Landlord” or similar material), there is no systemic or large-scale efforts to establish this industry of original online content in a way that is different from what has come before.

Of course, writers did hightail it up north to Silicon Valley during the strike to try to get some money to create new kinds of online-entertainment production companies.

But it felt like it was out of desperation, rather than a real commitment to change the system they were working in and to pioneer new forms of entertainment based around the Web medium.

The last time writers tried to marry venture capitalists, by the way, was in the last bubble and that was out of pure greed at the sight of the dot-commers all getting rich.

Well, greed did not work then and fear will not now. I would imagine writers will now abandon those efforts now that their old paychecks are back.

That’s too bad, because what’s needed is a whole new class of talent that has very little stake in the old one and who are seeking new ways of creating content, doing business and, most of all, envisioning the future.

Perhaps that is unspecific and not as real as the deal that was hammered out at the Luxe Hotel in the Brentwood section of Los Angeles between union reps and Disney’s Bob Iger and News Corp.’s Peter Chernin.

Now I have stayed at that hotel, in fact, for a conference, held nearby at the Getty Museum on a high hill overlooking Los Angeles. Called the Entertainment Gathering, it touched on the changing nature of the entertainment industry and also on the collision with the digital world it was facing.

Of course, there was a lot of talk about the innovation boom in Silicon Valley and what it meant for the entertainment industry.

At a break, one old entertainment mogul attending wanted to point out to me that Hollywood was like that once. He regaled me with stories of the mostly immigrant entrepreneurs who had left the certainty of the East Coast and had come to California and created a whole new business in the orange groves that once dominated the Los Angeles region.

“Can you imagine that?” he asked me, sweeping his hand over the vista.

Indeed, I could.