More on Netflix: 1) Piper's Michael Olson notes unique visitors to Netflix's (NFLX -2.1%) site fell 4% Y/Y in Q4, per NPD. There's a good chance the total number of unique Netflix users still rose thanks to growing TV/mobile use. Unique visitors to Redbox.com (CSTR +0.2%) fell 13% Y/Y. 2) As part of the buildout of its OpenConnect CDN, Netflix is installing servers on Cablevision's network, thereby lowering bandwidth costs and reducing Cablevision's traffic burden. OpenConnect stands to diminish Netflix's use of CDN services from AKAM, LLNW, and LVLT. [View news story]
See my other comment (http://seekingalpha.co...) in light of this information about OpenConnect lowering bandwidth charges for transport to end customers. Looks like my assertion is actually relevant.
Netflix (NFLX -0.4%) is going 3D: the streaming site is now providing a limited number of 3-D titles, and has rolled out a higher-quality 1080p format it calls Super HD. With Netflix recommending at least 7Mbps connections for Super HD streams (compared with 5Mbps for traditional 1080p), expect the company's bandwidth bill to go up, and for ISPs to become even more frustrated. Separately, Cantor is estimating Netflix's Warner Bros. deal will cost $100M/year, and CNNMoney's Paul R. LaMonica argues shares are now overvalued, given limited earnings and huge content obligations. [View news story]
Regarding bandwidth bills, I would possibly expect ISPs to be frustrated, but I'd be surprised if there was a material difference to Netflix's bandwidth bill. My understanding is that they solve this with peering agreements and CDN magic. There will be some additional bandwidth to seed the content, but after that, it should all be very low cost or free.
Amazon Gobbles Up More Lost Netflix Content [View article]
Bill,
You're generally very thoughtful. I know you're not a journalist, so I shouldn't expect a bias-free view. However, "This isn't the first time Amazon has taken advantage of Netflix's penny pinching" and you cite Netflix letting Epix exclusivity lapse there specifically, and the fact that Netflix dropped A&E content prior to Amazon picking it up is the basis of the article (implying that it was all the content).
Netflix cherrypicked the 300 hours out of the 1100 hours of A&E that were contributing economically to the streaming efforts. Amazon picked up all the rest (ironically including the stuff to do with pawning and storage -- where useless stuff goes to die).
Epix wasn't dropped, just the exclusivity.
I guess my point is that you're painting a harsh picture of desperation and/or incompetence that could also be described to shrewd content management decisions.
Netflix: Earnings, Internet Traffic Look Promising [View article]
I continue to marvel at how, like every generation of teenagers thinks that they invented sex, there are folks continually discovering and dismissing Netflix's seasonality.
There's been a Christmas spike since forever. There's been a summer lull also since forever. There's generally a run-up in the stock price following the Q4 & Q1 conf calls which settles back over the following month. There's generally disappointment around the Q2 & Q3 results. Of course, all of this was masked recently by the feverish rise to 300 and subsequent fall to 50.
As always in life, the answer is somewhere between the extremes. 300 was too high, 50 was too low. At this point, with the prospects of global streaming, I'm happy to call anywhere in the 70-100 range just right.
Netflix: Earnings, Internet Traffic Look Promising [View article]
Bill,
Have you considered that the percentage drop in earnings is due to planned investment in expansion of the business? You've touched on that issue in prior articles but from this comment it doesn't seem like you're connecting the dots.
Think of Netflix as the world's largest startup and they're operating on the edge of profitability on purpose. That purpose being capturing the larger prize of $5 per month from a billion global streaming customers with 10% margins (as opposed to focusing on the $9 per month from tens of millions of domestic DVD customers with 40% margins).
I'm sure you've read Innovator's Dilemma. Netflix has been very busy building the business that will gut its own legacy business before someone does it for them. They've also been pretty transparent about what they're doing and the financial effects.
Nattering Nabobs Of Netflix Negativism, Revisited [View article]
This is half-snarky, half-serious: Didn't NFLX actually reach $300 before crashing? Give him some credit for hitting the target. He probably didn't say it would *sustain* at $300, just get there...
Netflix: Fundamentals and Valuation Discombobulated [View article]
That wouldn't happen to be Schrodinger's cat, would it? That's about the only cat that would be smart enough to do it that I know of. Even if it is, then he may or may not be able to start its own streaming service. Actually, you wouldn't know if it did start a streaming service until you tried to look at the cat's financial statements of operations. At that point, maybe it becomes Bilton who does or doesn't exist. :)
Netflix: Fundamentals and Valuation Discombobulated [View article]
Do you have a link to Netflix's announcement that margins are going down because of increase content costs? The only thing I recall recently was Well's comments at the BofA/Merrill Lynch conference where he suggested that the deals being discussed today (including Starz) are all falling within the 14% gross margin target.
That's for Blockbuster by Mail. How exactly is three free months of one disk at a time (only if you sign up for $25+ a per month Dish subscription for two years) supposed to unseat Netflix?
You're right, I should clarify. When I said "in a profitable manner", I meant that Netflix can offer those payments to content owners with reasonable confidence that it is a profitable decision for Netflix.
I don't have any internal documents or knowledge to substantiate this. I'm extrapolating from past behavior patterns that I observed first hand, and assuming that while the context has changed (was DVD, now is streaming), the actions are the same (purchase and deliver content only when it's profitable to do so).
I agree with you that any number of cash-rich companies could subsidize an equivalent service (at a significant loss) in an attempt to unseat Netflix. However, those cash-rich companies didn't accumulate that pile of cash making bets like that. They made their pile by executing relentlessly in an area in which they were expert (Apple->hardware & style, Amazon->logistics,G... with search and ads).
I don't see anyone stepping up as a life-threatening competitor to date (e.g. able to fulfill predictions of Netflix bankruptcy in 2012). The closest I've seen is Amazon with Prime. If Amazon can focus, iterate and improve to the extent that they significantly overtake the quality of Netflix's service (not just parity), then maybe we'll have a Coke/Pepsi kind of matchup some time in 2013. That's a long time for Amazon to invest in a losing business, especially when they've got other profitable ones that they could be paying attention to.
Right. They care about the check. Netflix is the only one that can offer checks of that size in a profitable manner. Every other purported competitor would be savaging their own earnings to cut equivalent deals (even with the 'scaled down dollar value because of the smaller number of subscribers' effect -- the competitor at the smaller scale wouldn't be able to offer the service efficiently and cost effectively).
See my slightly impassioned (and M&M driven) response to Milkweed above. Content owners will come to Netflix. Content owners will love capitalizing on content that nobody but Netflix can sell profitably.
Netflix is one stop shopping for folks that don't care about HBO (like me and the 80 million households in the U.S. that don't subscribe to HBO.
Of course it occurred to me that nobody but Netflix could *profitably* and *sustainably* do this depth of subscription offering for $8 per month. That's the key. Netflix is doing it profitably *today*. They continue to grow the business internationally in a sustainable fashion *today*. This is because they: 1. are in all the devices 2. are in partnerships with a huge number of content providers (and no one content owner can hold them hostage) 3. are insanely efficient at leveraging technology 4. have unbelievable piles of consumer preference data about entertainment and the analytic engines to mine the gold from them
Note that I didn't say that "nobody but Netflix can do this". The very important word is "profitably". Netflix is out front and running away from all the competitors, and every new content deal they do is expected to add to the bottom line, or they wouldn't be doing the content deal. Every new country they enter will accrue to the bottom line, or they won't go there. Anyone else that comes in has to factor in the bloodbath to their bottom line until (or even if) they figure out how to do subscriptions profitably and at scale.
Any number of businesses could get started today and crush Netflix if it wouldn't be a phyrric victory. Nobody has the will to do it. To be cliched, read your Sun Tzu -- think about whose will has been sapped. Think who is bringing the fight to the territory where they're strongest. Netflix has the will and the expertise to stay out front and be increasingly profitable every day they're out there.
If I may wax hyperbolic and mix several movie metaphors, Los Gatos has three buildings full of frigging sharks with lasers on their heads swimming around in the entertainment ocean, and any e-tailer that tries to get in on this business will need a *much* bigger boat (or maybe even an armada).
More on Netflix: 1) Piper's Michael Olson notes unique visitors to Netflix's (NFLX -2.1%) site fell 4% Y/Y in Q4, per NPD. There's a good chance the total number of unique Netflix users still rose thanks to growing TV/mobile use. Unique visitors to Redbox.com (CSTR +0.2%) fell 13% Y/Y. 2) As part of the buildout of its OpenConnect CDN, Netflix is installing servers on Cablevision's network, thereby lowering bandwidth costs and reducing Cablevision's traffic burden. OpenConnect stands to diminish Netflix's use of CDN services from AKAM, LLNW, and LVLT. [View news story]
Netflix (NFLX -0.4%) is going 3D: the streaming site is now providing a limited number of 3-D titles, and has rolled out a higher-quality 1080p format it calls Super HD. With Netflix recommending at least 7Mbps connections for Super HD streams (compared with 5Mbps for traditional 1080p), expect the company's bandwidth bill to go up, and for ISPs to become even more frustrated. Separately, Cantor is estimating Netflix's Warner Bros. deal will cost $100M/year, and CNNMoney's Paul R. LaMonica argues shares are now overvalued, given limited earnings and huge content obligations. [View news story]
Amazon Gobbles Up More Lost Netflix Content [View article]
You're generally very thoughtful. I know you're not a journalist, so I shouldn't expect a bias-free view. However, "This isn't the first time Amazon has taken advantage of Netflix's penny pinching" and you cite Netflix letting Epix exclusivity lapse there specifically, and the fact that Netflix dropped A&E content prior to Amazon picking it up is the basis of the article (implying that it was all the content).
Netflix cherrypicked the 300 hours out of the 1100 hours of A&E that were contributing economically to the streaming efforts. Amazon picked up all the rest (ironically including the stuff to do with pawning and storage -- where useless stuff goes to die).
Epix wasn't dropped, just the exclusivity.
I guess my point is that you're painting a harsh picture of desperation and/or incompetence that could also be described to shrewd content management decisions.
Netflix: Earnings, Internet Traffic Look Promising [View article]
There's been a Christmas spike since forever. There's been a summer lull also since forever. There's generally a run-up in the stock price following the Q4 & Q1 conf calls which settles back over the following month. There's generally disappointment around the Q2 & Q3 results. Of course, all of this was masked recently by the feverish rise to 300 and subsequent fall to 50.
As always in life, the answer is somewhere between the extremes. 300 was too high, 50 was too low. At this point, with the prospects of global streaming, I'm happy to call anywhere in the 70-100 range just right.
Netflix: Earnings, Internet Traffic Look Promising [View article]
Have you considered that the percentage drop in earnings is due to planned investment in expansion of the business? You've touched on that issue in prior articles but from this comment it doesn't seem like you're connecting the dots.
Think of Netflix as the world's largest startup and they're operating on the edge of profitability on purpose. That purpose being capturing the larger prize of $5 per month from a billion global streaming customers with 10% margins (as opposed to focusing on the $9 per month from tens of millions of domestic DVD customers with 40% margins).
I'm sure you've read Innovator's Dilemma. Netflix has been very busy building the business that will gut its own legacy business before someone does it for them. They've also been pretty transparent about what they're doing and the financial effects.
Regards,
Rob
Nattering Nabobs Of Netflix Negativism, Revisited [View article]
Netflix Is Flying too Close to the Sun [View article]
Netflix Is Flying too Close to the Sun [View article]
I come back from vacation and see that NFLX raised money last Monday. I guess IOU one beverage of your choice.
I was pretty close to getting off, though :)
Rob
Netflix: Fundamentals and Valuation Discombobulated [View article]
Netflix: Fundamentals and Valuation Discombobulated [View article]
www.homemediamagazine....
Time to Short Netflix [View article]
That's for Blockbuster by Mail. How exactly is three free months of one disk at a time (only if you sign up for $25+ a per month Dish subscription for two years) supposed to unseat Netflix?
Time to Short Netflix [View article]
I don't have any internal documents or knowledge to substantiate this. I'm extrapolating from past behavior patterns that I observed first hand, and assuming that while the context has changed (was DVD, now is streaming), the actions are the same (purchase and deliver content only when it's profitable to do so).
I agree with you that any number of cash-rich companies could subsidize an equivalent service (at a significant loss) in an attempt to unseat Netflix. However, those cash-rich companies didn't accumulate that pile of cash making bets like that. They made their pile by executing relentlessly in an area in which they were expert (Apple->hardware & style, Amazon->logistics,G... with search and ads).
I don't see anyone stepping up as a life-threatening competitor to date (e.g. able to fulfill predictions of Netflix bankruptcy in 2012). The closest I've seen is Amazon with Prime. If Amazon can focus, iterate and improve to the extent that they significantly overtake the quality of Netflix's service (not just parity), then maybe we'll have a Coke/Pepsi kind of matchup some time in 2013. That's a long time for Amazon to invest in a losing business, especially when they've got other profitable ones that they could be paying attention to.
Time to Short Netflix [View article]
Time to Short Netflix [View article]
Netflix is one stop shopping for folks that don't care about HBO (like me and the 80 million households in the U.S. that don't subscribe to HBO.
Time to Short Netflix [View article]
1. are in all the devices
2. are in partnerships with a huge number of content providers (and no one content owner can hold them hostage)
3. are insanely efficient at leveraging technology
4. have unbelievable piles of consumer preference data about entertainment and the analytic engines to mine the gold from them
Note that I didn't say that "nobody but Netflix can do this". The very important word is "profitably". Netflix is out front and running away from all the competitors, and every new content deal they do is expected to add to the bottom line, or they wouldn't be doing the content deal. Every new country they enter will accrue to the bottom line, or they won't go there. Anyone else that comes in has to factor in the bloodbath to their bottom line until (or even if) they figure out how to do subscriptions profitably and at scale.
Any number of businesses could get started today and crush Netflix if it wouldn't be a phyrric victory. Nobody has the will to do it. To be cliched, read your Sun Tzu -- think about whose will has been sapped. Think who is bringing the fight to the territory where they're strongest. Netflix has the will and the expertise to stay out front and be increasingly profitable every day they're out there.
If I may wax hyperbolic and mix several movie metaphors, Los Gatos has three buildings full of frigging sharks with lasers on their heads swimming around in the entertainment ocean, and any e-tailer that tries to get in on this business will need a *much* bigger boat (or maybe even an armada).