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Alexander Mizan

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  • Netflix: The Long Term And The Short Term Of It [View article]
    Hi Videoman,

    1) I stand corrected on the Epix Deal.

    2) AMZN knows very well that Prime and Kindle is a cash burner. Just lIke HP sells (or use to sell - i don't follow it any more) printers at a loss and makes up the money in overpriced ink, the AMZN business model on Prime is that they lose money in it but once you are signed up for it, you are more likely to order everything you buy from them(you have no shipping cost), so they make much more on the products they sell because they sell a lot more... They can sustain this for sure for longer than NFLX because they do have more cash. Indeed streaming is just a side note on their business but just because of that, they can afford to lose money for a long time, whereas NFLX cannot.
    Jan 27 09:42 PM | Likes Like |Link to Comment
  • Netflix: The Long Term And The Short Term Of It [View article]
    I actually do not disagree with most of what you wrote.

    That said:
    1) NFLX is TRYING to become HBO. It is not HBO and that is not where the business model is sitting at right now. This is neither where the revenues nor the contribution margins are coming from. House of Cards, although expected to be hot, it is its FIRST exclusive show and so far it has only cost them $100M and earned them nothing. So, this is where Hastings is trying to take the business model but this is definitely not where it is... We are FAR from it.
    2) Just as you said, TW, Disney etc are indeed playing both ends. They have to. It is not a perfect world and they do want access to NFLX's existing subscriber base because selling content is part of their business and that's where the subscribers currently are. That said however, if part of your business is Hulu or HBO, wouldn't you see your subsidiary in a favorable light compared to a big competitor? I would. I would raise content fees to the competitor and try to compete with him/her at the same time. This is what is happening. And usually in this game, the guy with the bigger pockets and the most industry experience stands the test of time and wins a slow game. That is not to say that NFLX will die completely but it will be a much smaller player in a competitive environment. NFLX went to$15B market cap because they were doing DVD-in-mail at 50% Gross Margin. This is never coming back. And I say usually because there is of course the remote scenario that execution in the original exclusive content programming can be so outstanding that NFLX will turn into HBO. Yes - House of Cards looks great but what do you think are the chances for a non-Hollywood company to put together shows like Sopranos, Mad Men, Boardwalk Empire etc back to back? I think those chances are very slim. Huge bet and it can pay off big as you said but with remote probability.
    3) In terms of the content wars, If you think that NFLX CHOSE not to pay for content, you are mistaken... It simply got outbid from people who don't care about losing money because they have 10x its market cap and 10 other lines of business (AMZN) or it deemed that the content fees are too high. The content fees were too high but they will stay high because now there is more game in town. Their content deals that expired in 2011/2012 were ridiculously cheap because the library providers had not clue that streaming would become so dominant when they signed those deals in 2005-2008. Now they do. Content fees are never going to be so cheap again.

    So you are right. NFLX will become just like another TV channel. A rather big one maybe but to bet that it will surpass HBO in exclusive quality programming and make enough money to justify a 10B valuation when they have never even aired a show yet is a big gamble. It's a business model you want it to become but it's not that yet.
    Jan 27 07:12 PM | 1 Like Like |Link to Comment
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