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Milkweed

 
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  • Amazon: The Future Growth Implied By Its Price To Sales Ratio [View article]
    Outstanding as usual Slim. Good to hear from you again!
    Sep 26 03:15 PM | 1 Like Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    II,

    Content cost scale with sub growth and Hastings is a liar suggesting they don't. The price hike which was really a service cut to keep their cost down and projections of losses in 2012 less than a year after Hastings boasted about some mythical virtuous circle should be all the evidence you need to convince you content costs scale with sub numbers. If you want more proof compare Comcast and Time Warners video businesses. Comcast has around 22M video subs and video programming cost them ~$30/ month per sub. Time Warner has ~12.2M video subs and spends ~$29/ month per sub for programming.

    Based on Netflix gross margins they spend around $5/ month per sub on content. If they signed up every broadband household in the country to their streaming service they'd have the equivalent of 2/3 of what Comcast alone already spends to shell out for content. Sub growth ain't saving this unsustainable unprofitable over hyped ponzi scheme.
    Apr 26 07:51 PM | Likes Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    They've had massive and growing defections for years bio, the only reason you don't hear about them is because they've been able to replace them with ever increasing numbers of new subs. They're losing around 5M domestic subs a quarter now and replacements are only clocking in a little better than defections now. The next step is the torrid pace of additions inevitably slows and defections remain elevated and the net rapidly declines. The recent slow down is not the end it's the beginning and it's part of a long term trend. It's the inevitable consequence of saturation and gross additions finally coming back to earth.

    BTW they lose subs in droves year round not just in Q2 for the summer. I've seen Hastings blame sub hoppers for their massive churn rate and I'm sure there is a kernel of truth but it's not the bulk of the problem. As to sub hoppers revenue say for example they are in and out every other month and only pay 6 months of fees per year. I've seen Hastings say up to 1/3 of their subs are hoppers so at their current ~24M that would be ~8M subs contributing the equivalent of ~4M subs. On the other hand since content cost vary with sub count they'll likely pay for content on the order of a 24M sub base and receive revenue on the order of a 20M sub base in this scenario. They'll likely drop out altogether some time over the next few years as well.
    Apr 25 08:57 PM | Likes Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    II,

    Buying an unsustainable, unprofitable business makes more sense than buying an inferior competitor to you?
    Apr 25 08:30 PM | Likes Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    BTW bio I can give you some some yoy comps to show you that even with a much better than I expected Q1-12 there is an undeniable pattern of sub growth slowing dramatically over the last few quarters. Here are the yoy net sub comparisons over the last 3 quarters and mid point of guidance for Q2-12:

    Q3-10 1,932, Q3-11 (810)
    Q4-10 3,077, Q4-11 200
    Q1-11 3,590, Q1-12 1,700
    Q2-11 1,961, Q2-12 500 (midpoint guidance)

    I didn't write down the stats from Q4-11 on so I'm going by memory but the numbers are about right and I should point out this is domestic subs only. Comparing Q4-10 and Q4-11 gross additions and defections shows the issue, gross additions were nearly the same yoy in the mid 5M's however defections caught gross additions in Q4-11. That's the difference and while the price hike certainly hurt Q4-11 the defections were not that far off of what their long term trend would have suggested maybe a million or so and these were likely pull forward defections that made Q1-12 look better than it would have been. IE: average Q4-11 and Q1-12 together and you probably get something closer to reality. What ever way you want to slice it net additions are significantly slowing and will almost certainly turn to net losses on a sustained basis in the not too distant future.
    Apr 25 07:24 PM | Likes Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    bio,

    The service hoppers is a decent point but I'll counter with two more. How much revenue can you count on from subs who are dropping out regularly and if the service isn't compelling enough to keep em all year long what are the chances these subs stick around for 5-10-20 years? Netflix model doesn't work if they are not long haulers.

    The hoppers would give Netflix more run room than simply adding up the astronomical number of defections over the last couple of years and comparing it to the addressable market would suggest but it also means you can't count on a full year of revenues from a significant portion of their sub base and they're likely to lose most of these subs altogether at some point in the not too distant future.

    This model doesn't work unless subs come back for the long haul and attributing their enormous rate of defections in part to hoppers doesn't give me the warm and fuzzies about NFLX ability to sustain this business model. At best hoppers just mean the inevitable implosion takes a little longer.
    Apr 25 06:57 PM | Likes Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    <<<If netflix is such a bad b.model, why are there so many competitors trying to compete such a bad b.model? Bezos is not an idiot. Noodle on that.>>>
    ----------------------...

    Other than Amazon Prime which is a loss leader to promote their real business of selling products there are no competitors to NFLX model even though it's a no moat business. This should be telling you something.
    Apr 25 04:49 PM | 2 Likes Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    bio,

    There is an extremely consistent trend of Netflix sub defections in a given year being about equal to the number of people who signed up for service (gross additions) the previous year. In other words the average NFLX sub lasts about a year. The only thing that's kept them from imploding before now is a ponzi scheme of ever increasing numbers of gross additions more than replacing the ever increasing numbers of defections. While they managed to provide a little separation between those two trends in Q1-12 they've been converging for a long time and have averaged near break even lately. It's just a matter of time before the torrid pace of gross additions slows down and defections overtakes additions for net losses in their U.S. market. Replacing their better content with tv re-runs because they can't afford to renew the better stuff sure isn't going to help this trend.

    Since there are no existing subs to defect in the 47 new markets they entered at the end of 2011 their international net additions will be artificially high for a few quarters but will eventually grind to a near halt as the early adoptors anniversary and drop service. See Canada's initial success later grinding to a near halt as an example. The same dynamics that make the U.S. unsustainable more than apply to international. Don't count on international bailing them out and count on current results being the high water mark for international. Hastings is pulling out all the stops to hide an inevitable implosion of the U.S. sub base. That's the real purpose of 47 lost causes. Getting back to your point NFLX weak content has always made a difference. It's just the ponzi scheme of ever increasing numbers of replacements for an over hyped service that's masked the problem. They're going to have to replace ~20M U.S. subs in 2012 just to break even on their sub count. That's about 25% of their addressable market.
    Apr 25 04:00 PM | 2 Likes Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    Any decent content that Neflix gets at a fixed rate will be a short term contract and the renewal price will reflect any sub growth. Their content cost WILL SCALE with sub growth as the virtuous circle we were told about at the start of 2011 resulting in projections of losses at the end of 2011 undeniably proves. They already count 33% of the addressable U.S. streaming market as subs and this business does not make money. There is no number of subs they can add that will fix this. For a frame of reference if NFLX signed up all 75M U.S. broadband households to it's $8.00/ month streaming service total revenues would be ~$7.2B/ year and based on current gross margins they'd have ~$5B/ year to spend on content. Comcast alone already spends ~$7.8B/ year on video programming. The Alabanian army ain't taking over the world.
    Apr 25 02:49 PM | 1 Like Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    BTW here's how you try to make the supermarket version of the Netflix model work. You systematically replace steaks, seafood and any other decent items with ramen noodles and hope your customers don't notice. Swap ramen noodles for tv re-runs and that's Netflix current business plan.
    Apr 25 02:26 PM | 1 Like Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    Maybe you would like to elaborate?
    Apr 25 02:21 PM | 1 Like Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    BTW we can use Reeds response to S.A. contributer Rocco Pendolas question about the prospects for a middle man as a fantastic example of the insanity of NFLX model. He used the example of super markets as evidence that there's a sound model for a middle man. Now imagine a super market that allowed you to take home anything you wanted for an $8.00/ month subscription. The result would be:

    1. You'd sign up almost the entire country as subscibers and you'd be immensly popular with your customers.

    2. You'd have the cheap as dirt subscription shopping market all to yourself.

    3. You'd have exponential revenue growth to go with your exponential subscriber growth.

    4. You'd eventually end up in chapter 7.

    Maybe the natural competition is smarter than you think.
    Apr 25 02:10 PM | 1 Like Like |Link to Comment
  • Why Doesn't Amazon Just Buy Netflix Already? [View article]
    <<<In addition to benefiting from integrating Netflix' existing business model,>>>
    ----------------------...

    There's the answer to your question. Streaming may be the future but cheap as dirt all you can eat subscription streaming is a money loser. It's the business model stupid! Instead of wondering why thebig boys don't see what you see maybe you should start asking yourself what they see that you don't.
    Apr 25 01:56 PM | 1 Like Like |Link to Comment
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