The video business is very misunderstood. Programmers have almost all the leverage..they are the owners...the ONLY owners...
..people blame the messenger for high costs, but its just the cables passing on constantly increasing programming costs..Cable margins have been flat for many years... they don't take margin hits because they dont have to..
netflix rents and then rerents at a margin as well...but their margin is almost nil...and there seems to be no prospect for improvement.....and unlike the cables they do not control the actual distribution channel...NFLX relies on broadband...and the broadband guys are going to monetize streaming more and more..changes in broadband packages will monetize bandwidth at NFLX expense (ie if you want to be a fulltime streamer you are gonna pay
just remember your love for a product does not always have a positive correlation with a good investment..
especially in the case where the product costs more to make(rent) than you can charge for it in a competitive world..
netflix makes no money...costs are going up...exclusives are moving away from them and that will accelerate..they cant raise price w/o subscriber backlash and their valuation requires quarterly subscriber growth beats and guidance bumps..
one reason its beloved as a product is that its viewed as relative value for money..that proposition is going the wrong way for them
amazon will pay any price to equalize those streaming numbers...it will take time but they have a megastore to promote that can profit from even a loss leader streaming business..and in the meantime they will bid up for everything out there..
and just wait till the cables further monetize the streaming trend and bump up the broadband costs unless you bundle cable .the last mile is primarily a sustainable duopoly...
Netflix (NFLX) CEO Reed Hastings tells the Financial Post that he thinks traditional fixed TV services will die out as a "bunch of different apps" compete for the time and money of consumers. The exec also said during the expansive interview that he doesn't see Netflix raising its $8 monthly fee despite rising content costs. [View news story]
What a surprise-- the market is changing , but not as fast as people like to pretend...
and its amazing that he said costs will rise, and they wont raise the price...they are already NOT making $$...
i like the cables and programmers...i dont play momentum stocks....i do follow nflx because its in the space...i do think there is a fundamental case for it at some aggresive multiple of 2014/2015 cash flow...i just dont see any reasonable visibility to cash flow.....
cord cutters are not growing much btw...they are insignficant at least in the cable companies i own...and if they do grow, look for aggressive bundling that will make it economically foolish to cut the cord unless the only thing you watch is a couple apps...
The last mile is scarce..they have tremendous leverage...wireless is 10-20 years away from speeds that will handle this traffic..if ever.. there are caps coming , more speed restrictions will be implemented ...they will be forced to do it...they'll invest to bump up capacity and speed and pass the costs on...
so you want unlimited netflix streaming? go for it...$300/ month... of course, its $150 if you take the cable channels...obviously i'm exaggerating..but the leverage to do this is there...there is no way around it..
In any case, programming is king, queen and jack...they will suck up all the value in this equation..they will cut deals with cables and telcos to ensure monthly subscription revenue and it will include streaming rights...or netflix will have to overpay for rights ...its already happening and netflix is choosing their exclusives, and losing whole libraries...
i get the consumer wishful thinking aspect of all this...ala carte programming is coming for sure...we are going to have much more control over what we watch and where we watch it..but it will cost much more than you think..and traditional tv will survive for a long long time...
congrats to longs...themomentum folks have this one right...when the tide turns is whole different discussion and its clear sailing for now so up up up!
Senator John McCain will introduce legislation shortly to overhaul the TV business by giving consumers the option to buy channels on an individual basis (a la carte) - instead of seeing only large bundles as options. The politician will face fierce resistance from broadcast (NWS, DIS, CMCSA, CBS, AMCX, SNI, OUTD, DISCA, VIAB) and cable companies (CVC, CHTR, TWC) but may have a friend in upstart Aereo which has been rankling a few feathers as well. (Aereo timeline) [View news story]
if the quantity drops, and if the monthly predicatable subsription and associated advertising revenue drops, the cost per program or the cost per channel will need to grow
that will result in price per program/channel multiple times today's price...its expensive to implement from the cables so they will pass that through as well...you are subsidizing them...if that model breaks down, the stuff you really want to watch will go way up in price and may not even get made at all!!
think $20/month for ESPN...or $20 for streaming your favorite tv show...many people will say that's what they want, but its an emotional statement...you will get much less for your money i'm sure some people would be ok with having 5 channels for $75 bucks instead of 500+ for $120...not me
as a possible example, look to prices for boxing or wrestling matches to figure out how much the olympics, the super bowl or world series would cost to watch in ala carte world..
this will stifle innovation in programming and result in lots more cheaply made reality type tv...its hugely risky to make programming...more fail than succeed...its easy to think only quality stuff will get made..the opposite is true...programmers will take less risk...high quaility low ratings stuff will not get made..half the channels will go out of business...Top of the Lake would have never been made...Rectify would never have been made..
if a program generates ala carte cash flow, it will be copied over and over...nothing new will be tried because there is no predicatable cash flow to subsidize it..
btw....this has been a political football since the 80's....and in today's programming world the streaming business complicates everything....
i would not bet on this happening or getting watered down so much it doesnt matter..
Netflix: Why 4 Billion Hours Is Not An Investment Thesis [View article]
Exactly...Over the years I've followed this company I anticipated a demise...that's not going to happen...
What is going to happen, in fact what IS happening, is that people are piling into the space, and they'll pay up for programming..
Netflix is already margin challenged, and will become more challenged...they will end up paying more in absolute dollars, they will have less programming, and they can't raise the price because there are just too many players...
so the strategy is to grow subs at all costs and the market has so far rewarded them for it..the hope is they become the gorilla of the streaming market...if you are fundamentally long, thats the bet
but they could easily end up king of a barely profitable business ...and google, amazon, walmart, and even comcast won't care...their streaming businesses will be part of a media group that will have many more revenue levers than monthly streaming..
Comcast's Shares Certainly Aren't Growing At Xfinity Speeds [View article]
I am long comcast..
2012 was a great year...2013 has been a market performer..
i like the defensive nature of this stock... comcast has many levers to grow cash flow regardless of how changes in the media landscape pan out.
i am also counting on some dividend growth and a continuing stock buyback that began in the mid teens...
as far as NBC, its not that investors can't stomach it, its that the asset is an underperformer. As Comcast assumes 100% control, the value inherent in NBC is more likely to increase than not. So I view it as an option..A couple of hit shows would have a very nice impact and Comcast is fully invested now.
If you are long the market in a diversified portfolio, Comcast is an excellent investment.
YouTube Subscription Hype Is Overblown, At Least For Now [View article]
The logic in the article makes alot of sense
content is king.. the streaming market has no clothes..
Netflix is executing its strategy well, but its a desperate strategy to get big enough to have at least some financial leverage against programmers....don't be surprised with a large equity offering to generate cash to pay for all the programming they'll need, even as they lose more and more content..
there are many competitiors lining up to buy content...google may even spend on programs knowing it will lose money but will benefit from their huge balance sheet and their ability to monetize content over their platform..their strategy seems sound to me..
google is building out fiber too...altho i personally beleive its just a test meant to scare the cable companies into more and more bandwidth (And it will likely work), its another example of how google can bash its own brains out in one area to ensure future growth across all its revenue streams...
the streaming market is overvalued because content renters will squeeze every penny out of their content, and broadband providors need to replace their lost cable customers with more broadband, and to the extent there is more than todays trickle of lost subs, they'll simply hike up bandwidth costs on subs that eschew traditional cable tv... which will also squeeze the streaming aggregators..
you tube is not really worried about this...they don't need cord cutters to grow with $1 and $2 channels...
there are so many interesting things google can do, webisode channels for hugely popular programs...imagine a $1/month LOST channel with exclusive scenes... its a similar concept to game distributors that are putting more pay as you go options into games...
The cycle turns. Apple's (AAPL) price target is upped to $525 from $465 by Barclays' Ben Reitzes, who maintains his Buy on the stock. Reitzes is no doubt a fan of the capital return plan after he got onboard months ago with the Einhorn idea of significantly bumping the dividend/buyback without touching overseas cash. Shares +1% premarket. [View news story]
so true EJC...
many of these analysts work for big investment banks or have other skin in the game..
the debt offering enriched those banks...Apple can and will issue new debt, they'll trade their own debt...that's what corporate treasury departments do... this is a huge new cash flow for the banks and although there is no direct tie to analysts anymore, the analysts are not idiots...
add to that the simplicity and size of the borrowing and buyback this is a really good situation that will soften analysts to apple's operational challenges...all the blips will not longer cost $50/share...and anything good that happens will get good analysts coverage now..
the risk is ios7 or 5s underwhelms, but alot of that is priced into the stock...the downside is mitigated because $400 is sky is falling type of valuation, and now there is a bigger dividend and new shareholder friendliness to Apple's capital structure..
Why Is Apple Issuing Debt For Share Repurchases? [View article]
I assume your talking about Occam, not Accam..
Your thinking is more uninformed, speculative and political than "simple"
Occam's Razor would say that borrowing at 1.8%, and buying a stock that you believe will appreciate and getting 3% to own it is good. That would be pretty much the whole thing...That's whats so cool about Occam's Razor
BTW..Te people that buy the debt are debt investors........Its primarily institutions that are required to invest in debt...They buy debt as part of their mandate..In a stock market crash the principal risk to Apple bonds would be very small..
Everybody knows they don't have to buy the stock...I bet $450/share that they will...
I'm Not Gonna Brag, But I Did Recommend STAG [View article]
i remember your article..
i bought it and thank you!!
Amazon Prime Hits New Milestone [View article]
but the stock is trading at a hugely speculative multiple...dvd is not really part of that bubble...(assuming its a bubble)
Amazon Prime Hits New Milestone [View article]
you are correct, the DVD business is different as you point out...
the DVD business is not the growth engine for them..
what netflix does strategically with their DVD business is going to be interesting to see..
Amazon Prime Hits New Milestone [View article]
that is exactly my point...
they are the OWNERS...it is against their best interest to have one buyer ...it will never happen
Amazon Prime Hits New Milestone [View article]
..people blame the messenger for high costs, but its just the cables passing on constantly increasing programming costs..Cable margins have been flat for many years...
they don't take margin hits because they dont have to..
netflix rents and then rerents at a margin as well...but their margin is almost nil...and there seems to be no prospect for improvement.....and unlike the cables they do not control the actual distribution channel...NFLX relies on broadband...and the broadband guys are going to monetize streaming more and more..changes in broadband packages will monetize bandwidth at NFLX expense (ie if you want to be a fulltime streamer you are gonna pay
Amazon Prime Hits New Milestone [View article]
especially in the case where the product costs more to make(rent) than you can charge for it in a competitive world..
netflix makes no money...costs are going up...exclusives are moving away from them and that will accelerate..they cant raise price w/o subscriber backlash and their valuation requires quarterly subscriber growth beats and guidance bumps..
one reason its beloved as a product is that its viewed as relative value for money..that proposition is going the wrong way for them
amazon will pay any price to equalize those streaming numbers...it will take time but they have a megastore to promote that can profit from even a loss leader streaming business..and in the meantime they will bid up for everything out there..
and just wait till the cables further monetize the streaming trend and bump up the broadband costs unless you bundle cable
.the last mile is primarily a sustainable duopoly...
Netflix (NFLX) CEO Reed Hastings tells the Financial Post that he thinks traditional fixed TV services will die out as a "bunch of different apps" compete for the time and money of consumers. The exec also said during the expansive interview that he doesn't see Netflix raising its $8 monthly fee despite rising content costs. [View news story]
and its amazing that he said costs will rise, and they wont raise the price...they are already NOT making $$...
i like the cables and programmers...i dont play momentum stocks....i do follow nflx because its in the space...i do think there is a fundamental case for it at some aggresive multiple of 2014/2015 cash flow...i just dont see any reasonable visibility to cash flow.....
cord cutters are not growing much btw...they are insignficant at least in the cable companies i own...and if they do grow, look for aggressive bundling that will make it economically foolish to cut the cord unless the only thing you watch is a couple apps...
The last mile is scarce..they have tremendous leverage...wireless is 10-20 years away from speeds that will handle this traffic..if ever..
there are caps coming , more speed restrictions will be implemented ...they will be forced to do it...they'll invest to bump up capacity and speed and pass the costs on...
so you want unlimited netflix streaming? go for it...$300/ month... of course, its $150 if you take the cable channels...obviously i'm exaggerating..but the leverage to do this is there...there is no way around it..
In any case, programming is king, queen and jack...they will suck up all the value in this equation..they will cut deals with cables and telcos to ensure monthly subscription revenue and it will include streaming rights...or netflix will have to overpay for rights ...its already happening and netflix is choosing their exclusives, and losing whole libraries...
i get the consumer wishful thinking aspect of all this...ala carte programming is coming for sure...we are going to have much more control over what we watch and where we watch it..but it will cost much more than you think..and traditional tv will survive for a long long time...
congrats to longs...themomentum folks have this one right...when the tide turns is whole different discussion and its clear sailing for now so up up up!
Senator John McCain will introduce legislation shortly to overhaul the TV business by giving consumers the option to buy channels on an individual basis (a la carte) - instead of seeing only large bundles as options. The politician will face fierce resistance from broadcast (NWS, DIS, CMCSA, CBS, AMCX, SNI, OUTD, DISCA, VIAB) and cable companies (CVC, CHTR, TWC) but may have a friend in upstart Aereo which has been rankling a few feathers as well. (Aereo timeline) [View news story]
if the quantity drops, and if the monthly predicatable subsription and associated advertising revenue drops, the cost per program or the cost per channel will need to grow
that will result in price per program/channel multiple times today's price...its expensive to implement from the cables so they will pass that through as well...you are subsidizing them...if that model breaks down, the stuff you really want to watch will go way up in price and may not even get made at all!!
think $20/month for ESPN...or $20 for streaming your favorite tv show...many people will say that's what they want, but its an emotional statement...you will get much less for your money
i'm sure some people would be ok with having 5 channels for $75 bucks instead of 500+ for $120...not me
as a possible example, look to prices for boxing or wrestling matches to figure out how much the olympics, the super bowl or world series would cost to watch in ala carte world..
this will stifle innovation in programming and result in lots more cheaply made reality type tv...its hugely risky to make programming...more fail than succeed...its easy to think only quality stuff will get made..the opposite is true...programmers will take less risk...high quaility low ratings stuff will not get made..half the channels will go out of business...Top of the Lake would have never been made...Rectify would never have been made..
if a program generates ala carte cash flow, it will be copied over and over...nothing new will be tried because there is no predicatable cash flow to subsidize it..
btw....this has been a political football since the 80's....and in today's programming world the streaming business complicates everything....
i would not bet on this happening or getting watered down so much it doesnt matter..
Netflix: Why 4 Billion Hours Is Not An Investment Thesis [View article]
What is going to happen, in fact what IS happening, is that people are piling into the space, and they'll pay up for programming..
Netflix is already margin challenged, and will become more challenged...they will end up paying more in absolute dollars, they will have less programming, and they can't raise the price because there are just too many players...
so the strategy is to grow subs at all costs and the market has so far rewarded them for it..the hope is they become the gorilla of the streaming market...if you are fundamentally long, thats the bet
but they could easily end up king of a barely profitable business ...and google, amazon, walmart, and even comcast won't care...their streaming businesses will be part of a media group that will have many more revenue levers than monthly streaming..
Comcast's Shares Certainly Aren't Growing At Xfinity Speeds [View article]
2012 was a great year...2013 has been a market performer..
i like the defensive nature of this stock... comcast has many levers to grow cash flow regardless of how changes in the media landscape pan out.
i am also counting on some dividend growth and a continuing stock buyback that began in the mid teens...
as far as NBC, its not that investors can't stomach it, its that the asset is an underperformer. As Comcast assumes 100% control, the value inherent in NBC is more likely to increase than not. So I view it as an option..A couple of hit shows would have a very nice impact and Comcast is fully invested now.
If you are long the market in a diversified portfolio, Comcast is an excellent investment.
Apple: A Deep Dive Into Perhaps The Most Profitable Bond Issue Ever [View article]
the bond offering is a perfect example of how powerful Keep it simple stupid can be..
The idea that Apple has finally done something "just for shareholders" has huge implications that will help the stock trade for the foreseeable future
YouTube Subscription Hype Is Overblown, At Least For Now [View article]
content is king..
the streaming market has no clothes..
Netflix is executing its strategy well, but its a desperate strategy to get big enough to have at least some financial leverage against programmers....don't be surprised with a large equity offering to generate cash to pay for all the programming they'll need, even as they lose more and more content..
there are many competitiors lining up to buy content...google may even spend on programs knowing it will lose money but will benefit from their huge balance sheet and their ability to monetize content over their platform..their strategy seems sound to me..
google is building out fiber too...altho i personally beleive its just a test meant to scare the cable companies into more and more bandwidth (And it will likely work), its another example of how google can bash its own brains out in one area to ensure future growth across all its revenue streams...
the streaming market is overvalued because content renters will squeeze every penny out of their content, and broadband providors need to replace their lost cable customers with more broadband, and to the extent there is more than todays trickle of lost subs, they'll simply hike up bandwidth costs on subs that eschew traditional cable tv... which will also squeeze the streaming aggregators..
you tube is not really worried about this...they don't need cord cutters to grow with $1 and $2 channels...
there are so many interesting things google can do, webisode channels for hugely popular programs...imagine a $1/month LOST channel with exclusive scenes... its a similar concept to game distributors that are putting more pay as you go options into games...
The cycle turns. Apple's (AAPL) price target is upped to $525 from $465 by Barclays' Ben Reitzes, who maintains his Buy on the stock. Reitzes is no doubt a fan of the capital return plan after he got onboard months ago with the Einhorn idea of significantly bumping the dividend/buyback without touching overseas cash. Shares +1% premarket. [View news story]
many of these analysts work for big investment banks or have other skin in the game..
the debt offering enriched those banks...Apple can and will issue new debt, they'll trade their own debt...that's what corporate treasury departments do... this is a huge new cash flow for the banks and although there is no direct tie to analysts anymore, the analysts are not idiots...
add to that the simplicity and size of the borrowing and buyback this is a really good situation that will soften analysts to apple's operational challenges...all the blips will not longer cost $50/share...and anything good that happens will get good analysts coverage now..
the risk is ios7 or 5s underwhelms, but alot of that is priced into the stock...the downside is mitigated because $400 is sky is falling type of valuation, and now there is a bigger dividend and new shareholder friendliness to Apple's capital structure..
Why Is Apple Issuing Debt For Share Repurchases? [View article]
Its a good investment
that's how occam's razor works...KISS...
Why Is Apple Issuing Debt For Share Repurchases? [View article]
Your thinking is more uninformed, speculative and political than "simple"
Occam's Razor would say that borrowing at 1.8%, and buying a stock that you believe will appreciate and getting 3% to own it is good. That would be pretty much the whole thing...That's whats so cool about Occam's Razor
BTW..Te people that buy the debt are debt investors........Its primarily institutions that are required to invest in debt...They buy debt as part of their mandate..In a stock market crash the principal risk to Apple bonds would be very small..
Everybody knows they don't have to buy the stock...I bet $450/share that they will...