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In addition to issuing soft subscriber growth guidance in his company's Q3 report and...
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Tuesday, October 23, 2012, 7:20 PM ETIn addition to issuing soft subscriber growth guidance in his company's Q3 report and shareholder letter (.pdf), Netflix (NFLX) CEO Reed Hastings made waves by admitting competition from Amazon, Hulu, and others is a matter of concern, and predicting HBO (TWX) will launch a streaming-only U.S. service. Also of concern: 1) Netflix's "known" content liabilities total $5B, of which $2.1B are due in the next 12 months. 2) Domestic streaming's contributing margin remains ~1/3 that of the declining DVD business. Shares -16.1% AH.
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The real issue now is that content prices could actually soar, more so than the past, as Netflix dumps exclusivity on some deals. As their deals expire, like Epix next year, they may be forced to re-work the deal at much higher rates.
But the wording in the letter is not significant. It's repetitive.
Taken from the 10-Q two years ago. Page 30.
"We anticipate entering into other agreements to license streaming content, which if consummated, would result in significant additional commitments."
http://1.usa.gov/PpcDTq
The second, and BIGGER difference-- in the 2 year ago 10Q they state "we anticipate entering INTO OTHER" as in. "we currently have no other obligations, but we might sign up for some whoppers in the future." The words now say "does not include OBLIGATIONS that we cannot quantify, but could be significant" as in "we signed up for some stuff that we don't really understand, but we could be in for some massive financial liabilities here."
One is a future expectation, the other is a statement of liability. Huge difference.
We have entered into certain license agreements that include an unspecified or a maximum number of titles that we may or may not receive in the future and/or that include pricing contingent upon certain variables, such as theatrical exhibition receipts for the title. As of the reporting date, it is unknown whether we will receive access to these titles or what the ultimate price per title will be. Accordingly such amounts are not reflected in the above contractual obligations table. However, such amounts are expected to be significant and the expected timing of payments for these commitments could range from less than one year to more than five years.
Isn't that basically the same thing?
As for the investor letter, I wrote in a past article that they change the format of it each quarter. They do. Every time they either change the financials they present, in Q1 they presented that stupid seasonality table, Q4 was cash flow / net income and such.
It's basically a bunch of junk. What can we try to say to make investors feel good, but in the end, show that we're not meeting our goals. But if we throw out 1000 pages, maybe you'll miss what is on page 783.
This topic of unforeseen liabilities has been brought up before-- it's due to this "uncertainty" loophole that NFLX can even get away with 'hiding' the liabilities. The huge difference was that NFLX brought it to the forefront. That tells me a mega nasty surprise is coming in a few months and they don't want to get sued or face other legal action.
The point is that they don't seem to be entering as many new contracts, something I've pointed out recently. Now, they are just waiting for the ones that they have already "agreed to for the future" to come current, in a matter of speaking.
I would love to see a spreadsheet of all of Tilson's trades. To hear him talk, after existing his short position at a loss, it's been all sunshine and roses. Something tells me the actual net profit/loss from those trades is a bit more sobering. Maybe it's because every time NFLX goes down, he couples his statements about adding to the position (Translation = "This is a good thing") with a reminder that NFLX is a very small portion of his portfolio (Translation = "We're not getting hammered too hard").