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Andrew Shapiro  

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  • Are Netflix's International Ambitions Justified and Achievable? [View article]
    I think current NFLX growth expectations assume unrealistic levels of international expansion, certainly at current margins. International subscribers won't come as easily as US subscribers and certainly not as cheaply for the following reasons:

    1) Netflix has very little real presence or brand value or equity in any foreign market. Its just starting in Canada now.

    2) As with Amazon's recent purchase of Lovefilm in Europe and Quickflix in Australia, foreign markets have real competition that will compress margins and increase content costs.

    3) The current low cost bandwidth 'buffet' that exists in US broadband space does not in international markets. Foreign markets have rules much further from net neutrality than the US so video streaming and bandwidth hogging will cost either Netflix or the subscriber additional money, altering margins or the subscriber value proposition.

    4) Netflix hasn't purchased the content for int'l yet (already NFLX content for canada is not same as it is able to offer in US).
    Mar 13, 2011. 02:10 PM | 2 Likes Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    Few points here. The entrance of Amazon and even the studio direct sale model via Facebook are all sources of competitive revenue for the same content. Thus content costs for Netflix are now a higher costing game for sure not lower.

    Amazon has the bundled services and sales (and subscribers) to support its competitive bidding for content vs. Netflix. What if NFLX were to pass on Starz library at a price Amazon was willing to pay? the ratio of 5K titles of Amazon to 20K titles of Netflix changes quite abruptly, potentially equalizing product offerings. Except Amazon subscription already costs less and subscriber gets free shipping on all goods purchased at Amazon. Amazon is motivated to do this because every new subscriber to Amazon only used the 'free' shipping if the subscriber buys products from Amazon. Hence this whole bundled 'promotion' drives incremental product sales for Amazon. Thus when content purchase decision cost/benefit is being calculated Amazon, they aren't just considering the number of subscribers in the denominator, they are also counting the incremental $ of product sales in the numerator.

    NFLX says they manage to margin, and you and I both agree, if they do that they won't pay up for content purchases. However, without fresh expanded and newer content, subscriber value/price satisfaction falls and churn definitely goes up (is it any surpriste mgmt won't be providing churn figures going forward. ). This is especially true if Amazon gets the content NFLX doesn't pay up for.

    In any of the above scenario, achievement of 50MM subscribers doesn't come close to being achieved.

    IMO NFLX does pay up for content with newly issued stock funding the higher costs. But this lowers margin while facilitated better subscriber growth.

    But then even with the content, for other reasons I have specified 50MM subscriber still unlikely to get hit and with new shares, higher content costs and shortfall (albeit smaller) in subscriber number - EPS growth doesn't get achieved and $11 BILLION valuation isn't maintained.
    Mar 9, 2011. 07:13 PM | 1 Like Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    What you are describing is Netflix presently only desires to and will remain (until EST later) subscriber of just aged content of old movies and tv series. While this would be a separate product and one that could be viable. It is not one that grows to 50MM subscribers and supports anything close to the $11 Billion valuation.
    Mar 9, 2011. 06:52 PM | 1 Like Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    DM, we are in basic agreement that Netflix is not going away and the valuation is ridiculous. I would also agree with you that IF Netflix mgmt's intended business model is to show old movies and old tv episodes of mcHale's navy and 24, etc on a 24/7 demand basis, then the company is not going away, there is room for these new participants in a segmented market.

    However, Mgmt has done nothing to communicate the business model as you see it, but instead have either fueled or purposefully remained silent as others have certainly communicated a far more aggressive business model. If the company were to have normal conference calls with normal live Q&A (rather than pre-screened, censored and pre-scripted answers) where they could face real inquisition on these issues and truly communicate or answer that the business model is the way you see it, then I could agree that the model has been communicated. But instead investors, sell side and the media get what I call the NFLX "faux conference call."

    The fact that NFLX insiders have sizable stock selling programs in place is certainly one contributing factor. The fact that NFLX at such valuations is a high likelihood secondary stock offering. In fact, if you are wrong with the model and the company is pursuing something more aggressive, then NFLX must issue stock in some way (directly or indirectly) to fund higher costing content purchases.

    The point I have made here and elsewhere regarding both the Amazon entry and studio direct marketing via facebook is that for fresh new content in particular - the cost just went a lot higher.
    Mar 9, 2011. 03:59 PM | 1 Like Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    DM - you make a valid argument for a business model that has value and can be profitable. However, it is not the business model the company has chosen yet to communicate. Nor is it the business model the sell side analysts, who are secretly clamoring to be picked for the inevitable secondary stock offering, are projecting or touting. That is because, as you somewhat admit, such a business model comes nowhere near the growth to 50MM subscribers in a few short years or to ever fit into the current $11 BILLION valuation of NFLX stock.
    Mar 9, 2011. 09:25 AM | Likes Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    But psound, you seem to imply that NFLX has power over its content costs. The increased competition for content and outlets for content providers to directly sell, all raise the cost Netflix will have to pay for fresh content or even renewing its old stuff.

    As Netflix previously fixed cost content purchases expire, either a variable pricing content model will emerge but from a much higher starting point or an even higher fixed price is going to be charged, transferring and creating far greater risk to Netflix on the the next go around. Netflix will take a hit in margin and its operating leverage to ramp up that margin will be a lot flatter this next cycle than last go around.
    Mar 8, 2011. 07:39 PM | 1 Like Like |Link to Comment
  • Netflix: New Competition a Threat to the Multiple, Not the Business [View article]
    Through Facebook, the studios have just added a portal of really no cost to them to directly monetize its content to 500 million users rather than a flat fee sale for a specified time period to Netflix who may or may not successfully leverage that purchased content to its 20 million (they hope 50 million in 5 years) users during its purchased window. If the studios can make more money going direct than selling the content to Netflix they are going to do it. Studios likely will monetize the good stuff, while fresh (even two year old Black Knight is fresher than what Netflix's can regularly offer on its smaller library streaming service), directly via a Facebook or other distribution portal (this is what Google/YHOO/MSFT ought to consider doing too). Netflix is going to be limited to the old stuff unless they pay up. The price for Netflix to obtain fresh desirable content just went up.

    In some respects as this activity expands, it MAY very well force the migration of Netflix into lowered margin distributor because of greatly increased content costs. Those increased costs have to be paid for in some way and $200MM in cash isn't going to to cut it. In order to have fresh attractive content to stay on track for subscriber growth, NFLX will have to issue stock to purchase content or obtain the money to purchase content.

    Alternatively, as Hastings and NFLX mgmt has said, they will control margin and not subscriber growth, Netflix may have to limit its content purchasing and offer just the old stuff. Unfortunately that value proposition will eventually result in vastly increased churn when the bulk of the subscribers will have seen every episode of 24 and Mchale's Navy, and all the old movies etc. and NFLX will experience much slower than expected subscriber growth.
    Mar 8, 2011. 07:34 PM | 4 Likes Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    DM - yes there is some value to consumers for access to old movies and TV re-runs. But then again your talking about the AMC network then and not HBO or Starz or current new release VOD. That's not worthy of NFLX $11 Billion valuation or expected growth of subscribers from 20MM to 50MM. Just aint going to happen. NFLX has to acquire additional content and with the new Facebook direct distribution portal that price for the good content just went up even more than when AMZN entered the fray.
    Mar 8, 2011. 01:29 PM | 1 Like Like |Link to Comment
  • Just One Stock: Come for the Real Estate; Stick Around for Popcorn and Flicks [View article]
    Hollywood goes global | Bigger abroad
    The Economist - Feb 17th 2011

    www.economist.com/node...
    Mar 8, 2011. 01:03 PM | Likes Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    This is a win-win for both Facebook and the studios who own and generate the content and a big lose for Netflix.

    The studios have just found a portal of really no cost to them to directly monetize its content to 500 million users rather than a flat fee sale for a specified time period to Netflix who may or may not successfully leverage that purchased content to its 20 million (they hope 50 million in 5 years) users during this purchased window. If the studios can make more money going direct than selling the content to Netflix they are going to do it. Studios likely will monetize the good stuff, while fresh, directly via a facebook or other distribution portal (this is what Google/YHOO/MSFT ought to consider doing too). Netflix is going to get the old stuff unless they pay up. The price for Netflix to obtain fresh desirable content just went up.

    Facebook is not purchasing the content. It is acting as distributor and processor and getting a fee as well as millions of more clicks and viewing activity on its site and the incremental revenues that come from it. In some respects as this activity expands, it MAY very well force the migration of Netflix into lowered margin distributor with alot of platforms but 'only' a 20MM subscriber base that will be less likely to get to the expected 50MM.
    Mar 8, 2011. 11:47 AM | 1 Like Like |Link to Comment
  • Whitney Tilson: Why We Covered Our Netflix Short [View article]
    KL, I Completely agree with your point. US market saturation that NFLX will run into (sooner if AMZN and other competitors strongly emerge) is exactly why NFLX is unlikely to achieve the high expected subscriber growth without huge influx of int'l subscribers. Those subscribers won't come as easily as US subscribers and certainly not as cheaply as
    1) NFLX has little brand equity in int'l markets.
    2) There is competition in Int'l markets (in Europe, its Lovefilm - soon to be Amazon; and in Aussie its quickflix);
    3) There is no net neutrality internationally so video streaming and bandwidth hogging will cost either the service or the subscriber additional money;
    4) Netflix hasn't purchased the content for int'l yet (NFLX content for canada is not same as it offers in US).
    Mar 7, 2011. 04:35 PM | 2 Likes Like |Link to Comment
  • More support for tapping into the U.S. strategic oil reserve comes from Robert Reich, as "Americans are still trying to get out of the gravitational pull of the great recession." But he doesn't pin all the blame for rising prices on Middle East unrest: "Developing nations all over the world... are coming out of the recession much faster... so they are also putting pressure on oil prices."  [View news story]
    The reserve is for a material "shock" to prices. Price impacts from increased demand from world wide economies rebounding from recession should not trigger use of the reserve. Rise in price right now is more from speculators attaching a "risk" of shortage premium to price of oil. There isn't even a supply shortage at this time. Market forces should be allowed to play out and reallocation of purchasing and supply decisions should not be interfered with.
    Mar 7, 2011. 11:32 AM | 6 Likes Like |Link to Comment
  • AMC Theatres® and Regal Entertainment Group® Raise the Curtain on Open Road Films [View article]
    How does exhibitor owning distribution co not violate Paramount and other Supreme Court cases that separated the studios from exhibitors decades ago?
    Mar 7, 2011. 08:54 AM | Likes Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    It has not been announced. But my substantial experience tells me its inevitable. It can be in the form of an offering with a syndicate of brokers (who are all now fawning/auditioning for the assignment) or via the acquisition of assets using stock instead of netflix's precious cash.
    Mar 7, 2011. 08:43 AM | Likes Like |Link to Comment
  • Netflix: Stock Run Ends as Amazon Enters Streaming Market [View article]
    Just as love films and its first mover advantage in europe was combined and bought by amazon. Here is another company emerging in Australia.

    Quickflix ready to ride wave of online movies
    www.theaustralian.com....

    The 50MM subscribers expectation for NFLX is too close to market saturation to be done in US alone. Its not going to be easy pickings for NFLX in the international market. That secondary offering better come soon or it may come at a lower valuation.
    Mar 7, 2011. 12:24 AM | Likes Like |Link to Comment
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