Davis Freeberg

DivX Offers Low-Tech Help to Hollywood Partners to Expand Reach

My understanding of how the technology works is that consumers have a couple of different options when it comes to playing it back. Just about any laptop or computer should be able to play the file as long as they've got the DivX codec installed. If not, the codec is bundled on the stick itself and consumers can install if from there. If you happen to own a DivX DVD player (prbly 40 - 90% of all DVD players support DivX depending on where you go) then a consumer can transfer the film to their computer, burn it on their own DVD disc and then play it there. If you happen to have a USB supported DivX device like the PS3 or some of the television sets that let you plug a memory stick right in, then you should be able to play the movie right off the stick. Most of the more recent gadgets will support this implementation which will help it drive mainstream adoption. If consumers could only burn it DVD, it would limit the popularity to the early adopters.

As far as my comment on Blockbuster goes, they certainly could use DivX USB movies as a way to differentiate their kiosks from Redbox and/or to drive Blockbuster branded sales at other retailer's locations, but the way things are currently positioned, content is moving from packaged media to a direct download/streaming system and in that system companies like Blockbuster and Netflix may be positioned, but companies like Wal-mart stand to lose a bundle in media sales in the process. USB movies may not be the perfect solution but it could be an entirely new revenue stream for consumers who just aren't interested in DVDs anymore.


On Nov 20 09:36 AM Coney wrote:

> Does the DivX memory stick work with only computers and not television
> sets? We tech-trogs who buy DVD's, play them on our television sets
> not our computers. The bread-and-butter customers for retailers like
> Blockbuster will want playback on their television sets. Would TV
> widgets resolve the problem?
>
> In your last paragraph you write that the DivX would be a weapon
> "against Blockuster". Blockbuster makes its money on DVD rental and
> sales, and would appear to be the biggest beneficiary in shoring
> up their brick-and-mortar retailing by using the DivX memory stick
> while transitioning to mail and straight to TV sales channels.<br/>
>
> Excellent article.
>
> Robert

Blockbuster Could Collapse in 2010

These comments are just plain funny. Decline has stabilized, I'm still laughing about that one. Considering that last qtr showed a 30% decline, I'm not exactly sure that stable is the word that I'd used to describe it. As far as the 50 million goes, this was only reduced because they reduced their lease obligations by $50 million to, so it shouldn't help Blockbuster at all. Not sure what Jodati is talking about from a 10% growth rate, but his math is clearly suspect. In 2004, Netflix had 2.1 million subs and Blockbuster hadn't even launched their online program yet. By my math this means that we've seen 500% growth in the DVD by mail category, not the 10% that Jodati seems to calculate.

As far as it being "reckless" to insinuate that Blockbuster won't make it past 2010, I'd say it's reckless to insinuate that they will. Until someone can tell me how Blockbuster plans on raising $500 million between now and then, I don't see how bankruptcy is avoidable. It'd be one to refinance debt, but at 40+% interest rates how the heck are they going to do that? Not sure that Netflix shareholders have anything to do with Blockbuster's stock price, but I will point out that Mark Wattles started selling his stake 2 weeks ago, which would certainly depress prices. Wattles also got out of Movie Gallery right before they went bankrupt, so this may be something to consider. Since he has 9% of Blockbuster's debt outstanding, it might give you a clue at how the smart money is investing in the company.

Views from Netflix's Annual Shareholder Meeting

Great recap, thanks for attending and reporting back. In regards to your question about lack of subtitles, I believe that this is a restriction because of the codec they are using. Since the studios control the DRM, there is only so much that Netflix can do about this. I know that prior to going to Silverlight they weren't able to include surround sound via streaming either, but that was taken care of in the upgrade. Not sure what Microsoft could do to allow subtitle support in Silverlight, but this issue is a lot bigger than Netflix. As far as Starz play goes, I think that you hit on a sensitive topic for them.

A lot of cable companies are concerned about Netflix siphoning off their members, so it may be better for his relationship with them not to comment. What I will say is that 10 million members gives them more leverage than you give them credit for and the fact that Starz plays is a partner (previously they were a competitor via Vongo), it's shows how valuable those 10 millions subs are. As the subscriber base grows, we'll see even more streaming content from premium channels like Showtime (who premiered a show on Watch Now this weekend), HBO and other cable channels who have the exclusives on their TV and movies.

There will probably always be issues with content getting pulled after it went up, but with most people having over 20% of their queues available via watch now, there should be enough content leftover to keep the service compelling.

Netflix Downgrades Miss Their Mark

Great insights. Somehow I don't see them ever monetizing their data by selling it to third parties. Their ability to know whether or not a customer will like a movie is certainly part of their secret formula. By reintroducing older movies to their customers, it helps to bring the content costs down, especially for the streaming service.

I found your comment about live streaming especially interesting. To be honest, I've never actually considered this before. I'm not sure if the studios would be comfortable simulcasting on Netflix and TV at the same time, but it's an interesting concept that my brain is still mulling over. It seems like there could be a lot of promotional benefit to giving away free live streaming for DVD/Watch Now premiers. They could use a Friday night movie of the week or something as a way of introducing watch instantly to people who haven't subscribed yet.

Having said that though, I suspect that live streaming would still be a ways off because of the technically difficulties of streaming concurrent feeds to all of their viewers at once. When you look at what happened during the Obama inauguration, it's clear that live streaming still has some bugs to work out. Still, it's an interesting idea that I'd love to see them experiment with.

Blockbuster's New Paradigm and Its Impact On Competitors

I don't doubt that Blockbuster has a tough road ahead, but Keyes' message was right on track. It surprised me to see the market price so much downside, into what I felt were significant improvements. There are no guarantees that Keyes will execute on his vision, but given his track record and a more reasonable business plan, I could see why you would be willing to give it a shot.

As a Netflix shareholder, I'm happy to see the price wars easing and think that the market has misunderstood Netflix's digital ambitions. Whether Netflix raises prices or sees more growth, I see them also benefiting from Keyes new focus. It will take time before we'll know if Keyes has the right solution, but he seems to be addressing all of the right issues.

Netflix's Problems Keep Biting It In the Worst Way

It's hard to take this article very seriously. How long will the cash reserves last? I can't believe that you can even ask this question. On the conference call, Barry McCarthy said that they had north of $400 million in cash and would have $500 million (without) a buy back by the end of the year. This is why they are using their cash reserves to buyback their own stock. I don't think a little bit of negative cash flow is going to impact Netflix's operations, the real issue that investors should be focusing on is the weak subscriber growth.

NetFlix's Double Dose of Good News Boosts Stock Twice

I've seen the analysts cite this "diminishing returns" argument several times and I've got to say that I don't fully understand their logic. The $5.99 plan is for 2 DVDs per month which means that Netflix is making about $3 per dvd rented. If you compare that to the 3 out at a time plan where usuage varies but where consumers can rent as many as 12 - 16 DVDs a month, you not only get lower profits, but also higher costs because of the increased mailing costs.

The reason why $5.99 doesn't work for Blockbuster is because they also give away free coupons. This means that consumers are averaging $1.50 per rental due if they fully utilize the plan. The analysts may not like $5.99 and it may contribute less to revenue, but it contributes directly to profits and boosts Netflix gross margins. It's also gives Netflix an important last weapon for customers who would rather quit then stay at the 3 at a time DVD plan.

While it's always possible that customer usuage on the 3 on the time plans can drop and produce higher average revenue per rental then $3.00, it's unlikely for the majority of consumers who clearly watch their DVDs on the weekends and ship them back on Mondays. If analysts better undersood Netflix pricing they might understand this, but I'd love to see them explain how exactly the $5.99 plan hurts profits.