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  • Netflix: The Long Term And The Short Term Of It [View article]
    Different folks will make different decisions in terms of viewing choices --- for the life of me I cannot figure out why my wife likes those shows on HGTV, but she does, nor does she have any interest in NFL RedZone. That's what all the bears don't understand when they think it's winner take-all buisness; and frankly the programmers, or content curators - really thats what the streaming subscription networks are, no different than other progrmaming networks --- the only thing different is that hte streaming networks are initially pursuing a direct-to-consumer distribution model, both because the inertia/short-sighted thinking of the the MVPD's (monopolist always resort to the same thinking so not surprising) and because they can (in that they are not beholden to the existing MVPD gatekeeper mafia), and the fact that they are not constrained with channel slot limitations of linear programming.

    I don't disagree that Netflix should not "charge" for enabling devices but only for utilization. For example I have two cable boxes on FiOS that i rarely use but it's just too damn much hassle to return it, so I pay $12.50/mo happily to fund my laziness (although one I eventually put a sling player on it so I can watch my TV anywhere on my smart phone -- including that RedZone during football season). Netflix's model is we'll let you connect as many devices as you wish to be enabled for Netflx (your roku, BD DVD player, Wii, Apple TV, all your tablets, your smartphones) but we will charge you for the ports that you actually use and eh basic all-you-can eat subscription is for only a limited number of simultaneous devices. Obviously they lowered the limit from 3 to 2 because they are eventually setting the stage for up-charge. Don't know when, maybe 2015, or 2014, or maybe they just wait to see when they get sufficinet inquiries from consumers that start getting frustrated with the 2 slot limit and eager for ways to get additional slots. I'm like you, my older (beyond college) children are/were on Netflix with my account, and now that one sitll is a smooch but the other got frustarted with me calling to ask "are you on netflix right now because the kids wan to watch Dora" that she got herown subscription - afterall it's only two starbucks a month.

    When HBO GO first launched, it had a one device at a time limitation (I knw because I was trying to borrow someone else's ID to try out the service because he was on verizon since my TimeWarnerCable MVPD did not support it ) but it was really stupid because of the TV Anywhere authentication protocol, you had to proactively disconnect each time, otherwise they wouldn't allow access by another device. They quickly fixed that problem (3 months maybe) and then later also changed the T&C to allow 3 simultaneous active viewing devices, in order to match Netflix's then policy. Don't know that they have downgraded the limit to follow as I havent checked out HBO GO for awhile because the TV's that I watch most often ahve Apple TV devices. Probably can't work out a rev-share model that doesn't conflict with HBO's existing deals with cable operators. Amazon Prime initially had problems with multiple access with the same userID but that may have been short-lived and i dont know what its current policy is but they have so few subsccribers that I doubt it's much of an issue. The SVOD is really a loss-leader product to entice participationg in Amazon Prime in order to increase sell-thru of phyical and also to entice the streaming subscriber to click on PPV/VOD as well as EST because that's where AMZN makes its money, but it results in a frustrating user experience because more often than not you ckick on something and AMZN wants to upcharge you on a rental charge and/or only sell a digital copy (during the EST only window that precedes the PPV/VOD window, or more typically when the studio content moves to teh pay cable 1 window on a pay cable/streaming network, it would "go dark" in the PPV/VOD channel an will only be available in EST for digital distribution).

    I agree with you, plenty of bloggers or bears who are short that will jump up and down and will probably have some success in knocking the value down -- that's why I am partially hedged. I doubt that the stock will get to the dirt cheap levels from a few months ago but I'm hoping it will test $100 again this summer, probably wishful thinking on my part. But you never know....
    Jan 31 03:56 PM | Likes Like |Link to Comment
  • Netflix: The Long Term And The Short Term Of It [View article]
    i dont really think it's a battle per se. I suspect that you will find in 2013 that at some point one maybe a few independent MVPD's (or this could be internaitonal) will become distributors for Netflix's content, just like Apple TV, which is evolving into a virtual on-demand MVPD, on a rev-share basis. The highest margin product for facilities-based MVPD's is their broadband ISP product, and the killer app that pulls upcharges for higher bandwidth pipe is video streaming.

    It was interesting that Rich Greenfield of BTIG pointed out that in a Q&A session last fall at one of the conferences (I think it was the Goldman conference because I remember the comment) that Netflix was cable friendly because despite the fact that video streaming, and specifically Netflix, drove the lion's share of bandwidth utilitzation that the MVPD's enjoy with their higest margin product, that Netflix, as opposed to other programmers, had YET to charge any retran or license fees to broadband operators. So it will be interesting as to whether friend or foe, and different operators will view it differently. Some will figure out: hey, an incremental $8 ARPU and maybe $1-2/mo contribution for fulfillment, plus the possibility to entice up-charge to higher speed pipe, then why wouldn't it look at it as just another pay channel that the MVPD can leverage over his existing plant. As opposed to the ex-sports writers, who now blog about new media, and next week will get a gig as the weather reporter, Netflix's offering is not intended to attack real-time content which is the crux of linear television and thus all this fuss about cord-cutting is much ado about nothing. Netflix is just another pay premium channel - just happens to have a huge library compared to the typicla pay premium channel. Just like the typical HBO/Showtime/Starz, Netflix offers a smorgasbord of delay broadcast recent releases in the pay cable 1 window (Weinstein/Paramount/L... Animation/film District and Disney branded studios, and potentially Sony-columbia and 20th Century Fox when those auctions come up for renewal), catalog film product (i.e. 2nd run pay cable or post-broadcast syndication for pay cable 3-5 windows), adding prior season television from global licenisng sourcing, and strong childrens programming platform, and at least to date, sans the spicy adult stuff that is the norm for HBO/Showtime/Cinemax/S... late night rotation).

    Yes, on most recent conference call, RH talked about the personalization platform being introduced some time in 2013 and that they were in beta. They have been talking about this for at least a year, but more so at media industry confabs. I'm sure that v1.0 will be lacking and that it will evolve from consumer feedback. But the trojan horse in this personalization initiative is a potential shift in paradigm. The bear thesis is that Netflix will run out of households and that after everone tried their free trial they are lost forever. In reality the content constantly evolves (just as HBO's content) and ultimately the programmer has to have sufficient content to justify the retention. However the paradigm shift that is intrigueing to me that is lost is the shift from shared viewing and household subscription to perrsonalalized content consumption and therefor incremental revenue streams. The analog is that POTS (plain old telephone service) was a shared houshold telephone line for almost 100 yrs (in the beginning even shared among neighbors) and the industry probably maxed out at around 1.4 lines per household (combination of second lines, so-called teenager chat lines before AIM and FB, and fax lines). Then comes the cellular industry and the telephone first became mobie (in-vehicle) and then portable (personal), because you could no longer share it once you drove away with it. And then family plans evolved to present an improved value proposition and to encourage retention due to the ETC structure of the post-paid industry. Now we have over 100% wireless device penetration of POPULATION in nearly every part of the developed world, particulalry as networks evovled to be data consumption devices beyond simply voice. I see the same paradigm shift in video content distribution -- televison viewing is no longer solely a shared viewing experience (as the cable industry will attest as to the numbe of boxes per household - we have 6) and once you take it away from a fixed network delivery and inject mobility/portability plus overlay the ease-of-use and speed of development of content consumpiton devices, the ARPU lift potential is evident for subscription services. Personalized profiles is the first stage of the evolution to family plans and sub-subscriptions. Initially Netflix did not limit the number of devices, then they changed the T&C to 3 simultaneous streaming devices, and tested episodically to actually enforce the rule but seemingly more often than not, allowed violations of the policy. now I believe the policy may be 2 simultaneous streaming devices, but I am not sure this is enforced religiously or perhaps if you have two iPads plus an Apple TV on premises going through the same router, all Netflix sees is one IP address. However, at times i've been blocked and wondered about adding a second account but kind of a hassle to figure out which User ID to assign to which device. Pesonal profiles will lead to family plans and to eventual upcharges that will result in ARPU lift (just like cable charges you for additional boxes or cellular charges for additional phones on a family plan). I envision this would be something like you get 2-3 profiles and 2 simultaneous streaming slots for the basic $7.99 subscription, and maybe an up-charge of $2-$3 for each 2 additional profiles plus additional simultaneous streaming slot. Most people don't realize that cable MVPD household penetration hasn't really gone up in the past 20 years, but ARPU has probably easily tripled, as the cable industry has successfully milked price increases and selling additional product bundles. Netflix will be no different -- currently it's subscriber acquisition, the paradigm shift to personal video consumption will drive personalization leveraged by social media, and all that means is a big pot of money at the end of the rainbow. I want Netflix to make no money now but instead spend every subscription revenue dollar to lock up content, grow subs, and constantly evolve the UI to improve stickiness and engagement. the profitability of such a subscription model is well tested. At less than 3x revenues for a subscription business that should have sustained 30%+ contribution margins at scale, but most importanly can manufacture the next gross add at 0.17 x annual subscription revenues, that to me is reasonable on an intrinsic value basis, but I believe there is such controversy and misunderstanding of the Netflix business model that it will get episodically cheap so I only added to the long side when it was close to 1x revenues, and have hedged a third of my posiiton now, but I think the future, while not guaranteed, is extremely bright, because I really can't find a lot of true competitive threats -- although I keep looking for it.
    Jan 31 10:43 AM | Likes Like |Link to Comment
  • Netflix: The Long Term And The Short Term Of It [View article]
    AM, which exclusive deal were they outbid on? As somebody pointed out, Epix went non-exclusive in the delay streaming window (now NFLX, Verizon, and AMZN) because cost to maintain the faux exclusive was too high relative to the value that Epix could get for going non-exclusive. It's "faux-exclusive" even the initial 2 yr window when NFLX had it because it was 60 days after the output content from Paramount/Lionsgate/MGM had already appeared on EPix and EpixHD (its budnled SVOD streaming platform).

    Regarding HBO, you seem to be defining HBO by the quality of its exclusive programming, I would argue that Showtime, perhaps is just as strong, particularly in adult comedic drama; and it's ccertainly not limited to HBO. Chris Albrecht took that DNA to Starz with him so there's nothing unique about HBO having the only secret sauce to fund and develop content, the only problem he has there is that his budget is a fraction of what it was. Talent gets attracted to money and creative freedom. My favorites on HBO were Band of Brothers, Treu Blood, and Curb Yoru Enthusiasm. but are they that much better than Dexter, Californication, The Tudors, or Borgias on Showtime -- dont know, I think it's a matter of taste and choice. But that's the whole point, what is the market value of diffrentiated content (Not otehrwise available on broadcast television, i.e. with adult themse, profanity, violence, and nudity) in a subscription model. The market evidence suggests that there's plenty of talent to support multiple networks and the subscription revenues that they generate to fund talent's creations. Just like every studio has their hits, they also have their flops (remember John Carter from Disney?). As opposed to you, I think original program development is a no-brainer. There are plenty of hand me downs from broadcast networks where serialized drama cannot develop suffficient audience for appointment viewing that can act as a farm team. I was a sucker for The Event, or V (pretty bad I know), or the Sarah Connor Chronicles, and even that I disccovered on Netflix called Surface that was a one season phenom on Syfy. So I have a different opinion that programming is the easy part.

    I respect HBO for its innovative strategic evolution, and its user interface for HBO Go is brilliant and visually stunning (as compared to the static icon panels that Netflix inherited from its DVD case-front days), but it is strategically handcuffed and struggling to evolve. Its content budget is about the same as Netflix but channeled to output deals form 3 of the Big 6 and probably 60% of its broadcast hours occupied by its original programming. however, it grew up in an environment of limited channel slots, so a "quality vs. qunatity" was an excellent strategy. Actually it's "quality among a targeted audience versus breadth to a variety of niches" because the latter could never make sense in a woorld of linear broadcasting with limited channel slots allocated by the MVPD's. But the world is cahnging to an on-demand model, and HBO's reliance on the MVPD's clunky interface and distribution gate-keeper is making it increasingly vulnerable. HBO has no way to get directly to the consumer and had a hard fought fight with its own ex-sibling Time-Warner Cable over compensaiton for HBO Go and whether HBO was forever limited to offering HBO Go only via an authenticated TV Everywhere model (i.e. the subscriber had to have a pre-existing subscriotion relationship through an MVPD). The problem is that anybody whoever expereinced HBO GO would never want to consume HBO from his cable operator but ther ewas no way for HBO to promote and market this much improved product other than tied to the inertia fo the cable oeprators.(and their outlandish toll).

    Let me tell you where Netflix is better than HBO, more specifically from a business model and strategic positioning, rather than the quality of original programming content that you seem to be comparing the two.

    Breadth of programming: in an on-demand world, a "library" is inherently driven to scale and breadth of content. It's not necessarily having sufficient high quality content to aggregate sufficient audience but rather having the breadth of content where narrow niches can be served since you are no longer constrained by channel slots constrained by appointment viewing. In such a world, narrowcasting and aggregating sufficient audience to pay for such niches creates barriers to entry and a network effect -- you go to that shopping mall because there is sufficient breadth of product to attract you (and somebody else) to the same desitnation even though each may be consuming totally different content/products.

    Control of distribution. Netflix spends 2 months of revenues for each gross add while HBO pays 40%-50% of its revenues FOREVER in a rev share model. Granted the MVPD does fulfillment, billing, and other services too, but to rely upon the MVPD to access and market to consumer is an achilles heal,a nd one which HBO is desperately trying to figure out how to evolve away from. The TV Anywhere brouhaha ultimately ended with a system fo authentication where HBO is blind to the customer where the MVPD contorled teh USer ID authentication and kept all the subscriber profile informaiton hidden from HBO. Netflix's marekting engine and its know-how and experience as to the utility and efficiency of different marketing channels is the envy of the pay cable netowrk industry...becasue they dont have it and are nowhere close. Add to that Netflix's breadth of placement on conneccted devices, promotional partners that promote its app (walk into every single wireless store and see what the carriers promote as the value proposition for 4G - you got it, you can stream Netflix on your super-duper smartphone), and distribution flexibility -- such as its disttibution alliance with Apple on Apple TV (the idiots that say Apple is a competitor to Netflix dont realize that Apple loves the agent model where it get rev share particiaption without the need to fund or underwrite content risk). Apple sold 2 million Apple TV's in the last quarter and each, you got it, primarily features Netflix as the first partner content offering. Same with Netflix positioning the prominent Netflix Red Button on the remote controls of a premdominant number of connected smart TV's and otehr devices such as sonnected DVD players and other streaming boxexs like Boxee,e tc.

    Dominant content verticals: One example is that Netflix totally dominates childrens prgramming with an aggregation including both Disney and Viacom, and also PBS, BBC, and other global franchises, bar none. No one has the audience that can come even close in the web on-demand space -- not Disney, not Nick, not Sprout, not The Hub, nobody. and in particular children programming, particularly younger childeren, is a drug opiate substitute, and Netflix is teh drug delivery platform. This audience locks in the parents who pay for the Netflix subscription as a low-cost babysitting service. There are also other categories such as prior season serialized dramas -- nowhere else (it doesn't work for broadcast synidcation) is there distirubtion for this content with the breadth of audience that Netflix has and the scale to underwrite the cost of exclusivity. HBO cannot ever be the outlet for Breaking Bad no matter how much they respect the programming adn its critical acclaim, and maybe wish that they had originally picked up the show when Sony first shopped the concept, but because of HBO's brand positioning, it would be hard for HBO to air content, no matter how wonderful, that was developed on another network, let alone, heaven forbid, to broadcast prior season (but yet HBO does braodcast with delayed window studio movie content, and even so-called catalog, read odl, movies that have been cycled a few times). Netflix is not so constrained -- if there is content that can attract audience utility and it's priced efficiently then it works for Netflix and works for it well,...and it may attract the next bucket of incremental subscribers who find this particular programming relevant.

    Personalization. While Netflix is currently pretty lousy, it is better than anyone else. My recommendation engine is burdened with the chlalenges of how do you recommend to a subscriber who loves Angelina Ballerina (a british cartoon targeted towards 3-5 yr old girls), Predator and Aliens, and Glee. Of course Netflix will be the first to evolve to personal profiles, improved parental controls, social media intergration, and ultimately a advertising/promotion model -- not to advertise product, but to take the personalized profile and recommendation engine to insert promotional trailers (liek the TV networks and teh movie theaters) to secure increased engagement.

    Anyway, HBO has great content, but Netflix is better strategiclly positioned in evolution to a new distribution and content consumption paradigm of internet televsion. HBO, and pay cable networks such as Starz and Showtime, will need to increaasingly play defense while Netflix has the luxury of playing offense and innovating at internet speed. HBO will have the luxury due to its strong content position to at some point tar the bandaid off and evolve away from MVPD distribution, but networks like Starz, which averages in the high $2/sub range in net monthly revenues after the MVPD take, do not have the financial scale to compete against Netflix,a s seen in the recent Disney jumping ship to Netflix. In Disney's case, it wasnt even that much due to the money, but rather teh stronger capabilities fo the Netflix distribution platform to showcase and ultimately moneitize Disney's studio product which is obviously another way of promoting the Disney brand and its studio franhcises such as Marvel, LucasFilms, etc.
    Jan 30 12:24 AM | 1 Like Like |Link to Comment
  • How Apple Gave Wall Street The Middle Finger [View article]
    if they did not expect to repatriate the monies, then they would be only subject to off-shore tax (usually lower) where they realized the profit (lots of transfer pricing games here). so their liability would not reflect the scenario of having to pay the tax when repatriating -- that's whi Apple's ETR is substantially less than the statutory US + State (California is communist state that tries to tax your global income) tax rates of 38%+. This compares with the 25%+ guidance for effective tax rate that they just gave for FQ2. If they reptriate the monies from off-shore, they will have to take an additional charge to reflect the U St and state ax liability that would result.

    That is of course their lobbying efforts (and GOOG's lobbying too) works in Washington D.C. and Congress passes a law that gives a tax holiday to encourage repatriation. I think they last did that 10-15 years ago -- sort of hazy in my memory but they did do that as another stimulous tactic to get monies back to US to generate jobs; of course US multi-national companies turned around and proceeded to use those savings to make lots of foreign acquisitions so not sure that it had its intended results. Of course new Congress today and maybe tehy forget and new politicians want to give another tax windfall to multi-naitonal corporations to get a quick infusion of corporate contributions to their PAC's so you never know.

    Bottom line the $100B off-shore cash is probably worth $80B in US (since you get some credit for the taxes you paid off-shore).

    This is all moot, they aint spending $54B to buy back stock.
    Jan 29 06:27 PM | Likes Like |Link to Comment
  • Why Apple's Profits Are At Risk [View article]
    your argument doesn't make entire sense by discounting mix when discussing competitive pressures. you admit that the causality of drop in average unit economics is the much faster growth of iPad (and now iPad Mini) than the growth of iPhone (where Apple enjoys the highest marign and one of the higher average unit gross profits). so how does that translate into a decrease in competitiveness. If Apple sells more iPods or Apple TV's which have both lower average ASP and average margin %, does that say one iota about the unit economics of iPhone, but the average of the company as a whole reflecting mix.

    ASP for iPhone has actually hardly budged in the past year (so where's the competitive pressure) but it's relative portion of the overall mix of Apple's aggregate sales is less because it is now growing at lesser rates than other products in the portfolio such as iPads and even tine slice of Apple TV's. The point is that unit economics driven by product mix tells you nothing other than that the average has shifted to reflect a different mix. The average is the average.

    At least you can say with the iPad that iPad Mini may have risked cannibalization/substi... with a lower ASP, lower GM%, and a loer Gross Profit unit economics than the original iPad. Is this a different product segment, i.e. a different leg of growth, or can it canibalize existing iPad sales -- but Apple is not dropping prices on iPads due to competition; it is participating in another segment that may overlap teh existing iPad.

    So if you had said that "hey the incremental $ of Apple's revenue growth is likely to be lower margin due to relative mix shift with respect to where the growth is coming from, and therefor that growth has less earnings power than before," I would be clapping and supporting your position. But when you say disregard the mix shift and impact of apples, oranges, and bananas on "Average Unit economics" and instead this indicates declining margins due to competitive pressures -- than I say that is a pretty foolish analysis.

    By the way, I dont discount the POV that Apple has more viable competitors today in terms of competing products at increasing functional parity than it has before and therefor Apple may be more challenged in maintaining its differentiation for its products, and more importantly, for its brand image, but pointing to average unit economics across a broad swath of products (i.e. including ranges from a $99 Apple TV box to a $2000 iMac) as indicative of the health of Apple's iPhone competitiveness is as analytically sound as reading Mayan calendars to predict whether the world will end tomorrow.
    Jan 29 05:39 PM | 1 Like Like |Link to Comment
  • Clearwire's Options Are Arranged Or Forced Marriage [View article]
    DISH's dream proposal is not a real "offer" if it's contingent on events that will not happen (i.e. Sprint agreeing to give up its governance rights and let DISH strip the assets first and then suck the economics out of CLWR afterwards) or where it only needs follow through conditioned upon that the world is flat.

    DISH's proposal is only the illusion of an offer (which is really a non-offer) in order to asset strip CLWR for its best spectrum (presumably the contiguous EBS channels) and leave CLWR shareholders with an obligation to spend money (i.e. to build to DIsh's specifications) leaving a pile of debt and burdensome lease obligations (both spectrum and towers) for CLWR shareholders.

    DISH's "offer" is "Let me take the better, smarter, and more attractive kids, along with the fancy cars, and all the jewelry" and leave the frumpy wife with the mortgage and credit card debts and the sick smelly dog" with the promise that "I'll be sure to come back to take you from this mess, but only if you convince the bank to give up their claim and you convince the neighbor to give up his rights,...and oh by the way, please keep on sending me checks to educate the kids and to pay for the chauffer to my fancy car". Oh and if you can't get every one of these unachievable conditions satisfied, DISH has long absconded with the best assets and says as the Japanese say "sayonara"..

    And why would the CLWR board agree to this Frumpy Wife Trade?

    Answer: they wouldn't but they will do the best they can to use it as a stalking horse to convince Sprint to bid against itself. Sprint may just be dumb enough to do so, but it's really Softbank's money and maybe Son doesn't feel like being a chump.
    Jan 29 02:23 PM | 3 Likes Like |Link to Comment
  • How Apple Gave Wall Street The Middle Finger [View article]
    The Company did NOT increase share repurchase authorization which requires both board approval AND the filing of 8-K. The company purchased $2B of its $10B authorization so has $8B to go within existing plan. Nothing prevents them from increasing or amending authorization, just that they have to announce it. They would probably have to "true-up" their disclosure by providing an interim update of any subsequent purchase since last report at the time they increase share repurchase authorization.

    So while I am cheering them on in repurchasing the rest of the initial authorization, there is n oway they can stealthily repurchse $45B because that exceeds the authorized limit AND there is not sufficient liquidity to execute that program within this quarter to do that much repurchases without driving up the market price of hte shares significantly.

    so good wish, but not exactly how it will play out, but you are correct that it would be foolish for them to signal their intent with respect to share repurchases and projecting EPS will necessariy get to the share count question.
    Jan 29 11:01 AM | 6 Likes Like |Link to Comment
  • Can You Still Own Apple? [View article]
    Steve Jobs was right. I got one of the first IPad mini's. Too small and hard to manipulate, but I love the featherweight versus the original iPad which was a self-defense instrument. I fully expect the next iPad 5 to leverage some of the strengths of the iPad Mini but in th eoriginal 10" size.

    And Tim Cook's strongworded denial of the need for a phablet size smartphone proves to me that one is in the works.

    BTW, has everyone figured out all the analysts and what they are estimating for EPS what their assumptions they had for sharecount. It seems to me that AAPL did not give EPS estimates but only revenues, gross margin. If they were buying back shares, can't argue with now being a fortuious time to do so.

    What will really catch the world by surprise is if one day we woke up and the HBO Go got carriage on Apple TV and is billed through AppleID (like Netflix, HuluPlus, MLB, etc are currently). Then the power of Apples' entrenched installed base becomes readily evident...

    In the meantime I would love to see $400/shr as I sold out too early at $230; of course the company was 1/3 the size back then and $100B lighter in the cash department
    Jan 28 03:16 PM | Likes Like |Link to Comment
  • Netflix: The Long Term And The Short Term Of It [View article]
    Unfortunately you simply don't understand the business model.

    The studios did not invest in Hulu Plus. The Media conglomerates who own Hulu (from Day 1) includes News Corp (Fox), NBC Universal -Comcast, and Disney.

    Of course Disney just entered 10 yr exclusive output deal for its studios with Netflix (following expiration of its output deal with Starz), and did non-exclusive catalog deal, and a non-exclusive exclusive for its Disney branded content (to supplement Disney channel) distribution.

    Oh Warner Bros studios did exclusive prior season deal on its serialized dramas such as Revolution and the Following (which both appears on competing NBC broadcast network for first run broadcast).

    Oh and NBC-Universal's Universal Studio's actually has long-term output deal with HBO for its studio product - despite the fact that it also owns equity (but now passive) equity interest in Hulu.

    News Corp's Fox Studio actually also has long-term exclusive pay cable 1 output deal with HBO that's up for renewal like 2016/2017 time frame.

    That's because Hulu is positioned as same-season (i.e. current season) "Catch-up" TV, and CEO Jason Kilar just resigned because he could not get the support that he felt was required (i.e. money) in order to grow Hulu, and the owners themselves had differing strategic visions of what Hulu is.

    HBO is most similar to Netflix in that it is both a distributor of exclusive studio output deals (Warner, Fox, and Universal and actually lost its Dreamworks Animation output deal to Netflix last year) as well as so-called "original" programming (both drama and sports verticals such as boxing), as well as some catalog product and late-night content (for its Cinemax patform mostly). But the difference is that HBO is currently reliant solely on MVPD's that suck 50% of the subscription fees as gate-keepers. That's why it is testing a direct-to-consumer strategy in Scandinavia in following Netflix in that country. BTW, "originals" simply they pay for the development and production,n ot some magic sauce -- every one of their originals has been pitched to most of the studios and actually are produced by some of those studios as well.

    So bottom line, Netflix, ;like HBO, Showtime, ESPN, Hulu, ABC, CNN, etc. is simply another programming network. All of these differentiate themselves based upon programming content, distribution strategy, and degree of "Exclusive" and non-exclusive content. The difference is that the traditional programmer broadcasts "linearly" -- one piece of content at a time for each channel slot. The only time-shifting was performed by the consumer on his dVR. This is evolving given the capabilities unleashed by broadband and the internet and cloud storage capabilities, to a consumption model that has nearly infinite channels since it is an on-demand model that let's the user pick what he/she wishes to watch when he/she wishes to do so. In that world, the actual size of the library becomes and important differentiator,...because it enables small niche programming, such as bollywood, b-movies horror genre, or military history, etc. to find its audience.

    Most pundits who talk about competitive threats seem to think there is only a winner-take-all world and dont understand that networks are distributors of content and often-tiemes includes counterprogramming (i.e. program something that's different or which others dont have). In their world of competition, there is no Starz, Epix, Showtime, Encore, Movie Channel, because there is already a HBO. OMG, how can a Fox ever establish a network when there is already ABC, CBS, and NBC,...let alone a CW with programming targeted to teenage girls like Gossip Girl and Vampire Diaries. or ABC Family channel with ti s set of programs which are totally different than its Disney or DisneyJr products.

    A programming network is a distributor -- it curates and selects and underwrites/funds programming that it believes can find an audience, either to sell eye-balls (ad-supported) or via subscription/retran fees (or ideally both). Netflix is no different but what is different now is that its US distribution just surpassed what HBO took 30 years to build, and what Netflix added in one quarter is what took HBO over the past two years to grow (while being dependent on MVPD's and charging 2.5x at $18/mo "rack rate). HBO is desperately trying to figure out alternative direct to consumer distribution without getting into fight with its existing cable operators. It looks at the value of its content and the brand positioning where it sits, and it sees the huge amounts of monies that is leaking to the cable operators, and it wonders how it can go direct-to-consumer before Netflix laps it again.

    Disney was not dumb. It chose to align with Netflix because it knows the maximum monetization of the value of its content is to leverage the strength of those with the greatest distribution and that would be Netflix, because that distributor would be in the best position to pay the most.

    Netflix is going a 10 bagger over the next 10 years. because there is no competition that is anywhere close, and content deals are either very long-term such as studio output deals or medium term for television syndication (and even those upon renewal, the guy with the largest subscriber base can CHOSE to pay the most if he wants -- but as oppose dot broadcast networks who must rely on ratings, an internet distributor SVOD operator knows an infinite amount of information and the value of every piece of content).

    That is why you are only seeing the beginning of the Netflix story - it's like HBO in 1980, the next 2 decades is going to be the opportunity of a life-time. Sony Columbia is up next, and Time-Warner has to really think twice whether to allow Warner Bro studios shop its content to auction (where Netflix is already the preferred partner for Warner Television Studios) or let it "sell" it at 1/3 the price internally to HBO. That's an interesting debate to be had.

    Streaming is not a "business" but rather an enabling technology for a programmer to distribute content without gatekeepers. Those who confuse different "streaming options" as competitors are blissful in their ignorance of what the new media paradigm that is simply a variation of the old. After-all, except in North Korea maybe, does any one really believe we live in a world where there is only one channel on TV?
    Jan 27 06:09 PM | 3 Likes Like |Link to Comment
  • The buzz hasn't worn off quite yet for Netflix (NFLX) with shares up 36.2% premarket to sail over $140 after the company's U.S. subscriber growth smashed forecasts. On Icahn's holdings: In his letter to shareholders, CEO Reed Hastings said Netflix has had "constructive" conversations with Carl Icahn about creating value without going into great detail. Icahn said in an interview yesterday he still holds his entire position along with the hundreds of millions of dollars in profits that have piled up rather quickly. [View news story]
    Resource allocation issue. I'd rather that they compete aggressively to get the Sony-Columbia Pictures output deal (the last two of the Big 6 up for renewal this decade are Sony and WB, and I doubt that WB will be allowed to seek bidders away from HBO).

    It's not the end of the world IMO to wait until back-end of 2013 or early 2014 for the next launch (it's supposed to be France I think - somehow I thought that had launched already or rumored to launch imminentley. that works as NFLX already has familiarity with French titles and lanugage in UI from Canada).

    By year-end US streaming will be 30%-50% higher contribution than domestic DVD, and remaining international burn would be 1/2 of current (i.e. under 60/mm a quarter), then they can pop out a new country launch once every 6 months (assume $60MM loss in initial quarter of launch for the big ones such as France and Germany) and expand out to the core of Europe.

    But I think incremental dollar to secure US dominance and add the next sub where US is already at scale is far more financially rewarding and that excess return can then be invested in foot print expansion.
    Jan 24 12:39 PM | Likes Like |Link to Comment
  • The buzz hasn't worn off quite yet for Netflix (NFLX) with shares up 36.2% premarket to sail over $140 after the company's U.S. subscriber growth smashed forecasts. On Icahn's holdings: In his letter to shareholders, CEO Reed Hastings said Netflix has had "constructive" conversations with Carl Icahn about creating value without going into great detail. Icahn said in an interview yesterday he still holds his entire position along with the hundreds of millions of dollars in profits that have piled up rather quickly. [View news story]
    I think the shorts will get squeezed as the operating momentum continues near-term, but then by summer when the seasonality comes into play, the short thesis will gain popularity again and the stock may retrace significantly. Q4 and Q1's gross adds are Q2's churn, and Q2 doesn't have the gross adds to outrun the seasonal churn echo. So you'lll get the "OMG, see Netflix can't grow because the market is totally saturated and look at all the fearful competition." IMO, not really the case of course, but that will again become the prevailing market perception, and the stock will likely retrace, by grinding down as some folks lose conviction and take profits, not a cliff drop IMO.

    Good luck. I am long but not a trader. In for the long-haul.
    Jan 24 11:47 AM | 1 Like Like |Link to Comment
  • The Apple Blow Up [View article]
    author doesnt seem to realize gross margin is a function of mix. IPhone, which is the largest driver of outsized GM, had no declination of ASP/unit. Rather it was the success from increasing portion of revenues from iPads, which has a lower profit margin in general and more specifically during the launch phase of new Mini, that resulted in the weighted average margin. It is not a sign of competition (i.e. Apple's iPhone ASP hardly budged), but rather growth in a different product category that doesn't offer the unique carrier subsidy characteristics that the IPhone offers.

    In any case, the author has articulated the proposition from short thesis well; however, he has actually given me the impetus to get involved now (on the long side). So thanks.
    Jan 24 11:34 AM | 2 Likes Like |Link to Comment
  • The buzz hasn't worn off quite yet for Netflix (NFLX) with shares up 36.2% premarket to sail over $140 after the company's U.S. subscriber growth smashed forecasts. On Icahn's holdings: In his letter to shareholders, CEO Reed Hastings said Netflix has had "constructive" conversations with Carl Icahn about creating value without going into great detail. Icahn said in an interview yesterday he still holds his entire position along with the hundreds of millions of dollars in profits that have piled up rather quickly. [View news story]
    JPM just upgraded NFLX this morning --- while he was neutral when stock was in $50's a few months back. We'll see other analysts jumping on the bandwagon too after the horse has already left the barn. This will get overdone relatively quickly as we get the mother of all short squeezes.
    Jan 24 09:15 AM | Likes Like |Link to Comment
  • The buzz hasn't worn off quite yet for Netflix (NFLX) with shares up 36.2% premarket to sail over $140 after the company's U.S. subscriber growth smashed forecasts. On Icahn's holdings: In his letter to shareholders, CEO Reed Hastings said Netflix has had "constructive" conversations with Carl Icahn about creating value without going into great detail. Icahn said in an interview yesterday he still holds his entire position along with the hundreds of millions of dollars in profits that have piled up rather quickly. [View news story]
    He may "hold" his position, but that doesn't mean that he can't start hedging some of it. Great trade for Icahn.
    Jan 24 09:09 AM | 1 Like Like |Link to Comment
  • Sprint's Battle For Clearwire Heats Up [View article]
    yes anyone else can bid, they just cant win. since Sprint isnt selling its 70% (the strategics are commited to sell to sprint irrespective of the shareholder vote -- it's called a "lock-up"). at least no one that wants to win the whole thing. Charlie doens't care about CLWR minority shareholders; he's working for DISH sharehodlers (himself really).

    His deal is let him strip the most valuable BRS spectrum (which isnt lease encumbered) and give him option for adjacent contiguous spectrum. and only if the proceeds goes back a portion of which is to pay himself (via teh bonds he holds), then he willl make an offer fot teh whole company conditioned upon at leat beign able to buy 25% of the company, which is 83% of teh minority shareholders not held by Sprint or otherwise committed to sell to Sprint. And by the way only if Sprint amends its goverance rights and CLWR becomes piggy-bank to build out Charlie's network (with what monies). He doesn't care whether he wins the back-end since he's stripped the most valuable spectrum on the front-end and has optioned a piece that he didnt pay for upfront. Worst case he does buy into a blockign position at CLWR after stripping it and he then remains a thorn in Sprint's side as payback for Sprint messing with his FCC waiver.

    What Sprint shold do is to match exactly DISH's offer on the front-end, which is to pay in cash to strip the best spectrum, do not require CLWR to repay debt but let it use it how CLWR's BOD sees fit (which may in fact to pay some debt down that's callable), and keep it's existing offer for the whole company without any of the conditions imposed by DISH but rather than a merger will do so via a cash tender -- let's shareholders vote with their tender rather that a vote. So if CLWR minority shareholders want to sell the spectrum in order to have more porceeds to pay the $500mm a year in interest expense, $550MM+ to pay for running the current network and spectrum leases, and to extend out their "option value" for someone else to pay more, they can simply "vote" by not tendering.

    DISH can simply ask for permission from CLWR to buy in the open-market to get to 25%, but they dont, because it is not worth $3.30 to DISH unless Sprint waives some of its governance rights, which means a transfer of value from Sprint to other shareholders, which Sprint aint dumb enough to do.

    In fact Sprint should do the asset-stripping trade that Charlie proposed described above, offer a back-end that I described via tender at $2.97 and agree to that if it does not get to 90% ownership (when it can do squeeze out), it will make another offer in 2 years to buy out all shareholders at a price at which if someone else will top by more than 10% on enterprise value basis, then Sprint will sell its ownership along with others at that price (it's an "honest bid" shotgun provision) -- of course what remains of CLWR after the spectrum-strip front-end is the less attractive spectrum along with the spectrum leases, opex obigations and a nice pile of debt. I wonder what that's worth at that time. Maybe Verizon will ride to the rescue then because surely Verizon will be desperate for additional spectrum by then and of course all spectrum must be equally attractive -- that investment thesis is called "hope" or "prayer".
    Jan 11 02:23 PM | 2 Likes Like |Link to Comment