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  • Sell Netflix: The Icahn Thesis Is Flawed [View article]
    Yeah Zynga definitely was challenged -- anytime 90% of your revenues are from 2% of your users, that is not a recipe for sustainable success. Although I looked at it as a short, but couldn't get comfortable with the event risk of what they could do with the IPO cash and whether they could pull a rabbit out of a hat with online gambling. Getting the timing right is so important on a short, especially if you are mark-to-market. I like shorting bonds better as more asymmetrical optionality on a business model.
    Jan 20 12:41 PM | Likes Like |Link to Comment
  • Sell Netflix: The Icahn Thesis Is Flawed [View article]
    Michael "there is no microphone that I don't like" Pachter, is a bag of wind. I agree his area of expertise is much greater in the gaming space than pretty much anything else he seems to like to express a point of view about. Although I remember him being bullish on GameStop (the next Blockbuster/CircuitCit... Shack/BestBuy IMO but that's just me), I haven't really followed enough to know where he actually has insight. Most recently, I think him shooting from the hip with quotes that Nintendo should just be a software company and license its software to the other consoles creates good soundbite but lacks any sound analytical substance -- he is the anti-Henry Blodget, in that he gets his play by pissing on things rather than pounding the table the other way.

    His 15 minutes of fame dissing Zuckerberg during the FB IPO was also amusing: see Kara Swisher's calling him "doofus" and the quote from some other investors:

    Pachter is that loud uncle that everyone has to suffer through -- thankful that it's only once a year at Thanksgiving.

    I don't begrudge a guy for having opinions, but he is just so clueless about the media and entertainment industry that I don't know how he can have such strongly felt views when he has so much ignorance. He does not, and has not, covered one single other media company in his career: any of the studios, any of the media conglomerates, any of the MVPD's, any of the television broadcasters, any of the networks,...NONE. Or know of any of the economic models, the strategies of the different participants, the checks and balances that mutual dependencies that govern the players. But yet he can have such strongly-held views that are simply wrong -- "Often Wrong, Never in Doubt". And he is such a media-wh**e, that he craves the limelight to promote his ill-conceived views.
    Jan 20 12:10 PM | 1 Like Like |Link to Comment
  • Sell Netflix: The Icahn Thesis Is Flawed [View article]
    Mintz: "All it takes is 1 or 2 motivated competitors to 2x-3x the cost of content overnight."

    Given that all the "6 majors" studio output are locked-up on long-term exclusives wth each of HBO, Starz, and Netflix, and most of the back-seasons of serialized drama from the television catalogs are similalry locked-up (although more medium term), where do you see exactly the point of entry?

    Paramount output deal may be up in the air given that Lionsgate (one of the 3 core equity founders of Epix) already has given up on Epix an decided to take its output deal to Starz. Similarly, Hulu has largely locked-up same season for all the major broadcast networks (but not back season) in partnership with its major broadcast network equity owners. Beside those prospective opportunities (although highly speculative), and maybe such undermonetized niches such as Bollywood films, and Hong Kong kung fu films, there really are not much else that offers a point of entry for those "motivated competitors" that you describe to make their mark.

    Of course maybe live-action sports is entirely new category that has not been fully exploited in the on-demand streaming universe other than unauthorized tube sites that are trying to by-pass licensing regimes. Live-action sports has very short shelf-life and such content principally lend themselves to an advertising-supported model rather than SVOD (DirecTV's NFL Sunday Ticket probably one of few exceptions but that is used to drive overall MVPD subscriptions as a differentiation vehicle).

    So Mintz, which specific content do you suppose would somebody (by the way, do they have existing subscriber distribution to justify paying for it or do they simply take it on the chin in operating losses while they spend the hundreds of millions to build the audience) with unlimited check book have the opportunity to play that is not already locked up that you believe offers the opportunity for a new entrant to use as the "tip of their spear" to attack HBO, Starz, Hulu, and Netflix? Not happening because there are no virgins left in California....

    You will see Redbox Instant shut within 18 months or simply evolve to PPV VOD model as there will be no content for it to license -- your middleman thesis actually fits Redbox Instant, because as opposed to Netflix, HBO, or Hulu, there is not one piece of content on Redbox Instant that is not non-exclusive.
    Jan 20 11:15 AM | Likes Like |Link to Comment
  • Sell Netflix: The Icahn Thesis Is Flawed [View article]
    Mintz, I have not disagreed with you on your valuation POV. I think the NFLX is quite rich, with probably more downside than upside in the 2014 time-frame, albeit defensible IMO based upon where other programming networks are valued (3x-5x revenues, or 15x-18x normalized EBIT). Personally, I am hedged on more than 2/3 of my aggregate long and this was after taking down 1/3 of the long on last quarter's earnings ($390/shr in after-market -- sweet!). I went long at about 1.3x revenues, and hedged out (too early it seems) via price ladder after stock hit 3x revenues. Over the long term, this programming network can easily approach 25%-30% EBIT margins, so 4x-5x revenues would be in line with other media properties.

    What I disagree with is the "reasons" that you cite for your short thesis which principally 1) challenge the size of the potential opportunity, 2) assume the assured commoditization of media distribution, or the so-called "just the middleman" thesis, and 3) over-estimate the impact of competition or other programming networks as if we lived in a 1 channel (i.e. winner-take-all) world.

    It is because I agree that the perception of the above (and other similarly feeble-minded thinking from idiots like Pachter) will be assured to guarantee stock price volatility, that I believe there will be an eventual downdraft in the stock (otherwise I would have simply sold rather than holding a hedge). In fact I am counting on it (or hoping at least) so that I can flex up my long eventually (by unwinding my hedges). In that respect CNGuy who is also short the stock (for a trade) but also disagree with your fundamental assessment of Netflix is more aligned with my thinking. I am less confident than he is to take an outright short position but I have in effect reduced my net long to remain more neutral. The outright long portions of my PA position are held by UGMA accounts for my kids that have a 10-15 year investment horizon which I see 15%-20% compounded even at these "lofty valuations" and is not worth the tax hit (given their cost is in the 70's) to trade their positions.

    With respect to the commentary by someone posting here that attributes the stock price to dumb retail investors such as their ex-girl friend, 92% of NFLX's float is held by institutional investors, 89% in the case of AMZN, according to Bloomberg...and do you know what that number is for IBM and MSFT, 78% and 67%, respectively. By the way, "institutional holdings" is compiled by Bloomberg based upon 13-F regulatory filings, which are required by those who are QIB's (manage more than $100 million of discretionary assets). So it's not really the dumb ex-girlfriends or retail investors who love the service that are holding up the stock price, it is actually major institutions that are supposedly managed by professional investors -- of course one's dumb ex-girlfriend may now have become accomplished portfolio managers based upon their demonstrated investment acumen. :-)
    Jan 20 10:32 AM | Likes Like |Link to Comment
  • Sell Netflix: The Icahn Thesis Is Flawed [View article]
    Can you get rid of CBS, since you have NBC, Fox, and NBC. Time-Warner found out,... not for long. And you certainly cant get rid of CBS today if Cox blacked out CBS, or you would be pretty pissed if you wanted to see AFC championship this weekend,...and you couldn't. So CBS is valued based upon the content that it has. you can argue that well all the major broadcast network are the same with non-sensical sit-coms, cloned singing/dancing contestant shows, other bad reality television of fat people or working stiff, along with a smattering of sports. However, if you are a fan of the latest episodes of CSI (not CSI:Miami) or the NFL AFC conference, you can only get it on CBS. Of course, if CBS didn't exist, that content would have found its way elsewhere, but CBS does exist, and it represents a portfolio of content franchises that it has RENTED (i.e. licensed) where you see it on CBS. And because it exists, and people are used to going to its channels to seek out the content that exists there, and thus this "middleman" has established both a portfolio of contractual licenses (all "rented") as well as an audience, which combined creates the earnings power and the associated "goodwill" of this asset if you were going to capitalize that earnings stream (if you were to sell it, what somebody would pay for it in excess of the embedded investment). The cost of entry are significant and formidable. For example, it took Starz 8 years of significant losses and negative cash flow before reaching the level of carriage and subscription to reach operating breakeven. Despite the challenges to create these programming networks (that's what Netflix is, a subscription-based on-demand IP delivered entertainment channel) and generate sufficient distribution and audience to establish a franchise, media conglomerates seemingly aspire to establish these new entrant core franchises called CNN, ESPN, HBO, CW, Fox, Epix,....because these "middleman" offer attractive economic returns. If the "middleman" business (what the media industry call "networks" or "channels") is so pedestrian as you describe, why do you suppose that presumably everyone wants to get into given all the presumed competition that aspires to duplicate or complement what Netflix has accomplished.

    The reality, which is something that is lost on Pachter and Pendola, is that networks in theory compete for eye-balls or entertainment time or dollars, but in reality mostly are complementary. They are not a zero-sum game. A Fox or CW creating a new network, does that mean that a CBS or NBC must disappear or go broke. A Movie Channel or Showtime, and Starz/Encore, or Epix now, Netflix and Hulu+ in the future, doesn't mean that HBO disappears or that its business is destroyed. By definition, the various channels themselves either counter-program or otherwise seek paths to differentiation. Hulu+ for example positions itself in "same season" television content supplemented by independent and foreign films, and now a scattered shot strategy (given the budget it has) of sitcoms, reality, and satirevision to frame its "original content" strategy -- one of those, maybe it's "Burning Love" (a spoof on The Bachelor) may develop an audience. Who knew what was a spoof called the The Kardashians, or low brow reality such as Housewives of [blank] would turn out to have mass audience appeal. However, the point of entry for the next few years will be difficult, at least in new release films, which are all largely locked up with long-term exclusives where all the Big 6 studios except maybe Warner (and not sure anybody would bid against HBO to be a stalking horse - although if I were Netflix, I would, just to increase teh internal transfer price at TWX so that it will dilute HBO's internal P&L and maybe sap some of HBO's budget for originals). There's a larger universe of non-exclusive catalog fare (that's the same as the $1 DVD bin at WalMart) but the major back seaon franchise for serialized television drama (which historically have been licensed shorter) and certain niche libraries such as childrens programming (Disney and Viacom) are also locked up for at least medium term (3yrs).

    Anyway, I am getting bored with this discussion, which was originally simply to comment on why "just a middlemen", when as you say most of the media business (and other industries) are just "middlemen". I think what you were trying (or others) to say is that it is a "commodity" business as a media distributor. I think every single media CEO would disagree with that statement as distributor s in the media business are often "gatekeepers" and that the toughest challenge for a content developer is to find distribution.
    Jan 18 09:55 AM | Likes Like |Link to Comment
  • Sell Netflix: The Icahn Thesis Is Flawed [View article]

    I respect the thought process that you went through even though I don't agree with it. that Rocco Pendola "middle man" thesis is really a bunch of crap. while at least it's a good soundbite, but just not analytically sound in that "just a middleman" thesis.

    Apple iTunes is "just" a middleman. Walmart is "just" a middleman. The theatrical distribution business is "just" a middleman, but Sony (and Fox before it) tried to change the economic allocation of who pays for 3-D and got it stuffed back in Sony's face. All the television broadcast networks are "just" middlemen because they bid for scripts, talent, production to develop content, including sourcing some from their own affiliates but also from many independent AND the television studios of their competing networks -- but they are "just" a middleman. Oh, and they are dependent upon the MVPD's for 96% of their audience.

    HBO is "just" a middle man, sourcing, exclusively, its pay cable 1 studio output content from the studios of Fox, Universal (each of whom competes against Time-warner on multiple fronts), as well as from Warner, and its "originals" by buying from all the television studios, including its own captive and its sister TWX affiliates --- don't get confused just because it brands the content as "HBO" that HBO is anything but "just" a middleman.

    AMC Networks (AMCX) is "just" a middleman as it sources its content from various studios including all of its iconic brand franchises (Breaking Bad is from Sony, Mad Men is from Lionsgate, Walking Dead is from Valhalla) as well recently taking over CBS Television studio owned and produced retread CSI: Miami after 10 seasons on CBS broadcast network (sloppy seconds works not only for Netflix). On the other side, AMC is entirely dependent upon the MVPD's for distribution, don't even have over the air -- talk about being "just" a middleman. AMCX by the way is valued at 4.4X EV/rev, which is about what NFLX is valued at currently except that NFLX growing much faster but obviously AMCX at more mature network margins.

    If you study the media business, the value of distribution, what you call "just" the so-called "middlemen" has a history of enjoying healthy profit streams. And programming networks are historically the fattest margin "middlemen" that exist.

    What's so funny is that the content owners -- who actually by the way are also middlemen who are mainly the financiers in bidding for "talent" that is constantly being sold via auction such as authors, scriptwriters, producers, directors, actors, and so on. Even when Spielberg went vertically integrated with pals Katzenberg and Geffen to underwrite DreamWorks, Spielberg ended up doing multiple projects with other movie and television studios, and different distributors/networks, because that was the only way to get the "content" that he loved most produced and distributed. no one has a monopoly on content, but the distribution or "media middlemen" is a scale business and often ends up in an oligopoly structure.

    Right now (could change), Netflix has the largest audience for broadband delivery with an engaged audience. Why do you think that Netflix 30 million subs represents 32% of peak US web traffic while Amazon's 20 million Prime customers represent only 1.6% of peak traffic? Ding, ding, ding, ding - because the Prime customer is really only purchasing the free shipping and not using the streaming service. That's why Disney locked up its studio content and children's library with a long-term exclusive deal with Netflix (beyond 2020 as reported) -- because Netflix gives Disney the largest audience (and therefore it gets paid a lot) but even though Starz was willing to pay same, Disney valued Netflix's much larger audience (and prospect to grow even larger) because that larger scaled audience lets Disney cross promote its content brands to reap the greatest monetization returns. Why do you think that Disney didn't choose to keep its childrens' content on its own Disney Channel streaming app --- because it can find a larger audience with that "middlemen" called Netflix and therefor earn boatloads more money, more eyeballs, and more 3-8 year old Disney addicts by leveraging Netflix's distribution. Netflix is simply a better digital drug delivery system than Disney's own streaming "channels".

    Same way that AMC knows that by giving Netflix exclusive on prior seasons of Breaking Bad and Mad Men and other serialized dramatic series, because Netflix could more effectively promote and multiply the audience of current season for those series for AMC to sell more eyeballs.

    I just see all these somewhat ignorant analysts (Pachter is the best clown) who have no clue how the media business actually works. in the media business, distribution (i.e. the "middleman") has always been the higher multiple business while the content side was the lower multiple due to its volatility of returns. Remember even the vaulted brains and masterminds at Disney blew $200M - light a match to it -- on John Carter, and this is after it got toasted with Mars Needs Moms - the largest loss in studio history. In the mean time, the "middlemen" called Regal Theaters, HBO, CBS, Showtime, Discovery, Time-Warner Cable, Apple iTunes, and all those other "middlemen" just keep on cashing the cash register.

    So no, I am not "missing the point", I just don't happen to agree with the somewhat trite statement about "just" a middlemen in the media business.
    Jan 16 10:14 PM | 2 Likes Like |Link to Comment
  • Sell Netflix: The Icahn Thesis Is Flawed [View article]
    you know telephone companies used to define penetration opportunity based upon households. after-all, it had always been shared "party" lines in the very beginning of the industry, so getting a separate phone line for each home was a luxury that seemed to be the ceiling of demand. somehow 50 yrs later the industry discovered that using the spare copper in twisted pair gave them the opportunity to tap fax machines and teenager demand for their own phone lines. Lo and behold the penetration ceiling now exceeded more than one line per household when the shared-use value proposition was overcome by consumer demand for a new user utility.

    Similarly, AMPS, the original AT&T's mobile phone subsidiary, defined its market potential for the cellular industry based upon the number of vehicles on the road, because after-all, it was a "car phone" and something to use outside the home. Who would have known that 10 years later Michael Douglas's character Gordon Gecko in Wall Street would make everyone want to go and get a brick-sized Motorola DynaTac "portable" cellphone. Today, there is not a developed country in the world where cell phone penetration does not exceed 100% population penetration. That is absurd when you consider the two tail ends of under 8 year olds and over 85 year olds, so effective mobile device penetration per available consumer is well past 1.2x.

    Therefore when you look at historical television viewing, which was a shared viewing experience for a family to enjoy together, to become eventually more individualized consumption, or different purposes (kitchen TV vs home theater, vs kids' bedroom TV's), that the nature of television viewing consumption when it evolved from 3 major broadcast networks to a 300 channel offerings today, increasingly migrated towards a fragmented audience that catered to individual and differentiated viewing tastes. Throw in now the new paradigm of mobility with tablets and smartphones, and the availability of broadband connectivity almost everywhere, plus the advent of cloud to facilitate large remote storage capacity either for offering choice on demand or otherwise to time shift entertainment consumption, the nature of television media consumption will continue to evolve to increasingly personalized television.

    That's a new world in which your definition of "penetration" as defined by comparison to "households" in looking at the analogue of the cable MVPD industry seems quaint and archaic.

    30 million "subscribers", on nearly 100 million households, or 250 million adult population, or 800 million broadband enabled access devices,.... who knows what this new future will look like.
    Jan 15 09:06 PM | Likes Like |Link to Comment
  • Burning down the TV pilot season [View news story]
    no need to "go back" to the prime time view, you just watch next season on demand either on Hulu+ or Netflix. Appointment viewing is a dinosaur content consumption model.
    Jan 14 09:07 PM | Likes Like |Link to Comment
  • Appeals court strikes down net neutrality rules [View news story]
    it's not really on Netflix but it is on HBO GO (called "Late Night Features") and on CinemaxGo -- same formula that worked on pay cable television the last 30 years to educate multiple generations of 15 year olds -- "I know that, we have cable".
    Jan 14 03:10 PM | Likes Like |Link to Comment
  • Ambac's complexity and uncertainty creating opportunity [View news story]
    The RMBS exposure and putback claims are part of "walled off" structured products portfolio in Segregated Account per Wisconsin insurance proceeding, although new Ambac has junior surplus note claim at the Segregated account. AMBC is mainly a ride on the recovery of the muni finance business (especially as interest rates go higher and more muni defaults, so there is value in muni bond insurance) and the monetization of signficant tax attributes at AMBC.
    Jan 9 04:34 PM | Likes Like |Link to Comment
  • Online movie sales keep getting stronger [View news story]
    By the way, "SVOD" is "Subscription Video On Demand" is how the industry describes Hulu+, HBOGo, WatchESPN, and Netflix. In other words, you get access to content via a subscription.

    Please note that the major studios have generally colluded together to establish industry "norms" in terms of exhibition "windows". Typically broad, and non-exclusive, theatrical distribution first; then after a seasoning period and I believe they protect the theatrical outlets with 120 day delay (maybe it is 180 days, I forget) before the studios release both EST and physical DVDs for an ownership model. It then becomes available, again still non-exclusive, in the PPV/VOD window, 60 days after DVD/EST initial release, for the broad distribution outlets both streaming AND via MVPD PPV. After 60-90 days during the PPV/VOD window, it then gets released, this time typically on only an EXCLUSIVE basis, to the "Pay cable 1" window, which is the window that Starz, HBO, and Netflix own the exclusive broadcast rights for shwoing to their subscribers. When it is in Pay Cable 1 exclusive window, it goes DARK in the PPV/VOD outlets; i.e. iTunes, Amazon, the MVPD operators can no longer show it on a rental PPV basis. However, these streaming outlets STILL CAN pursue an ownership model in selling EST digital copies (just like DVD's continue to sell) while it is in the SVOD exclusive window.

    Now you can understand why the studios, in offering discounts on DVD and rev share model to ala carte DVD renters like Movie Gallery / Blockbuster, if they would accept a 60 day delay from 1st Sale DVD before offering rental of studio new release content. This was to "protect" both the physical DVD sale and EST window. Redbox, which is much more dependent upon having available hot new releases (given its limited shelf space in a kiosk), decided to forego the discounts and instead rely on First Sale Doctrine and simply buy its DVD's in the initial release via wholesale. Netflix, which is much more of a catalog business in its DVD rental business (offering depth and breadth) instead took the discounts by accepting the 60-day delay and worked with the studios and their windowing.

    Similarly, both Amazon Prime and Redbox Instant offer a hybrid service combining subscription access (i.e. free streaming included) to certain content while offering ala carte PPV of a broader catalog. This contrasts with Apple iTunes, Google Play, and WalMart's Vudu who stick with the EST and PPV models and offer no subscription. I would argue that Amazon and Redbox are mainly using their subscription content offering in what I would characterize almost as a "teaser" menu in order to stimulate purchases of PPV (i..e. ala carte rentals) content of a broader scope (and non-exclusive, i.e. available at multiple venues) -- and where they make their money.

    As a consumer, i like to rent my content (on PPV) from either iTunes or Vudu, as I find their user interfaces and streaming quality superior to Amazon Prime. For SVOD, I happen to subscribe to pretty much all of them (except Redbox Instant which I find of no incremental value) such as HBOGo, Disney, Starz Online, Epix, Netflix,Hulu+, Amazon Prime, and many add supported such as Crackle, Viki, DramaFever. These "streaming" services are really "programming channels" analagous to either "basic channles"(i.e. free and ad-supported) or "premium pay channels" (paid subscription that offer differentiated content).
    Jan 8 11:07 AM | Likes Like |Link to Comment
  • Online movie sales keep getting stronger [View news story]
    online purchases is also called "Electronic Sell Through" where you purchase and "own" the license to view it for either download or to be held in a video locker in the cloud. Each of iTunes, Amazon, Vudu, Google Play, Samsung Media Center, Sony, and a zillion others can offer same. The studios themselves are packaging combination Blueray, Standard DVD, and electronic copy via its Ultraviolet content locker.

    The "VOD" used in this context is "Video On Demand" -- what the reporter really means is to call it "Pay Per View" which is a "rental" model, usually for one view, or for unlimited views over a brief time window (24 hours after initiating the content in the case of Apple iTunes). you largely get the same players as EST plus you add additional distributors such as the MVPD's (cable, satellite, Telco with IP video).

    basically it's either an ownership model or a rental model.
    Jan 8 12:26 AM | Likes Like |Link to Comment
  • Netflix launches $6.99/month single-screen plan [View news story]
    i am shocked how little JC knows about the media content licensing regime. It seems that you are primarily focused on recent film releases as content that is "worthwhile". Fundamentally that does not exist, or rather, it does NOT exist on ANY subscription service. That is because the major studios have well scripted release "windows": 1) theatrical, 2) DVD and EST (electronic sell-through), 3) PPV and rental (cable, Amazon, Vudu, ITunes, et. al, also private venue such as airplane), 4) Pay 1, 5) 2nd-run theatrical, 6) Pay 2 and television syndiction, 7) catalog.

    Winodws 1, 2, 3, 5, and 7 are mass distribution and Non-Exclusive (i.e. you can find it at one theater chain, but also the two others near by, or you can buy the same DVD at Target or WalMart; similarly, in the PPV window, you can rent it on iTunes, Amazon, or WalMart's Vudu. by the time it gets on deep catalog, it's non-exclusive and can be found among multiple outlets (broadcast tv, basic cable, all the subscription streaming services, ad-supported streaming services such as Sony's Crackle, and also as rotational "fill" for the subscription pay cable services)

    Windows 4, and 6 are the ONLY exclusive exhibition windows. When you see a pay cable 1 release on HBO for Fox, Universal, and Warner recent releases, you can't find it anywhere else. Similarly, Starz currently has Sony and Disney and will be getting Lionsgate at end of 2014, but Netflix will be getting all the Disney studios (Disney, Buena Vista, Marvel, Lucas FIlms, Pixar) in 2015 to add to its exclusives with DreamWorks Animation, Weinstein, FilmDistrict, and some other indies. Meanwhile, Epix, the pay cable channel JV formed by Paramount (Viacom), Lionsgate (Summit and Lionsgate), and MGM will be losing LGF's output to Starz despite the fact that LGF is an equity partner in Epix. EPix also redistributes its content in a so-called "Pay 1.5" window on a non-exclusive basis to each of Netflix, Amazon Prime, Redbox Instant, 60 days after it has appeared exclusively on Epix. Showtime, after losing Paramount when Viacom and CBS split via spin-off, is largely left with various independent studios and shifted almost entirely to original content television, independent studios, and back catalog. Therefore, either the studio content is available almost everywhere in ala carte rental (via either streaming or PPV) during the non-exclusive window and THEN IT GOES DARK (i.e. unavailable for rent, but available for purchase only via electronic sell-through) or it then is next distrbuted solely on an exclusive basis to those premium cable channels or SVOD services such as Netflix and HBOGO and fragmented among different channels.

    Except in the UK, where BSkyB currently has the exclusive Pay 1 release window output deals with all 6 major studios (and which it is likely to lose at least a couple to Netflix), nowhere else in the world does this exist as licensing is largely on a film by film basis, and certainly no one else has felt the need to lock up output deals from all six major studios.

    Therefore, whereas you are critical of Netflix's lack of recent studio content, it merely demonstrates your unfamiliarity of how content is distributed. All the major pay channel services (except Epix since it is so new and doesn't have the resources and distribution to support beyond its current film only strategy) such as HBO, Netflix, Showtime, and Starz have all evolved to original content as a core content differentiator that is supplemented by near recent studio releases. Netflix further differentiated by getting back season exclusives (that means only on Netflix) of major serialized drama brands from television (these are really long-form movies for each season) as well as certain verticals such as foreign films and children programming.

    What you choose to be "shocked" about just doesn't really matter, as Netflix will become the largest SVOD premium channel pay service in the US (surpassing HBO) this quarter because its value proposition has demonstrated mass consumer appeal, notwithstanding how you find otherwise.

    I think it is funny that all the bears all jump up and down and insist that Netflix must increase its prices, while it just dropped its entry price (to further make it difficult for new entrants) to accelerate adoption, while simultaneously shifting the value proposition for core users to eventually raise ARPU via family plans. Brilliant strategic initiative.

    The bear guys still dont realize that the best premium pay cable services only net in the high $7's for the cream of the crop such as HBO, down to the $2+/sub/mo range for Starz.. The pay cable networks are salivating at Netflix's ability to create its own direct-to-consumer distribution and worry about being trapped by their current MVPD distribution paradigm (and the resulting high cost distribution that creates burdensome pricing umbrella and high subscriber churn).
    Dec 31 10:31 AM | Likes Like |Link to Comment
  • Netflix launches $6.99/month single-screen plan [View news story]
    conditioning the user base for ala carte pricing. cable operators charge based upon each STB so this isn't too different. HBOGO originally, at launch, limited to 1 at a time (you actually had to proactively disconnect or you wer eblocked from loggin in from another device) but then changed its software to allow up to 3 at a time to match then Netflix policy; don't know if HBOGO dropped to 2 to match NFLX's current policy.

    By the way, this is not really 2 "devices", at least not currently, but rather 2 IP addresses -- if you are going through one router, such as at your home with multiple iPads and Roku's on same router, that is treated as one location. At least currently that is how it still works, because they can't recognize you. I do not know (haven't checked yet) given the personalization interface, where each self declares themselves as a different profile, whether that now allows NFLX to discriminate.

    I suspect at some point, the heavy users such as my household, will upgrade to the family plan... so ARPU will eventually creep up.
    Dec 30 04:48 PM | Likes Like |Link to Comment
  • Netflix, Amazon Prime And Hulu: Destined For Subscriber Growth [View article]
    Mark, Where exactly will Amazon get that content. Each of the major studio content, except Paramount (which is available on non-exclusive in the 1.5 window to each of AMZN, NFLX, and Redbox Instant via Epix, least for now), are locked up in LONG-TERM EXCLUSIVE contracts with HBO, NFLX, Starz, etc. And all of these were recently refreshed and locked up until the So there is no point of entry through the end of this decade.

    On back season exclusives on serialized drama such as Breaking Bad, Scandal, Revolution, etc., notwithstanding the estimated 12 million Prime subscribers, the actual usage according to Sandvine in measuring streaming usage is actually miniscule (less than 1/2 pt of share of volume) suggesting that the bulk of AMZN Prime is using it for the free shipping -- which is what AMZN wants those customers to consume. AMZN uses its Prime streaming offering (if you would actually use the service rather than simply speculating about it) largely to promote PPV rentals. It hooks you by offering the base catalog included in the subscription but want you (and bombards you with PPV side-by-side) instead to click the ala carte rental selections instead with addiitonal up-charges.

    On original content, AMZN is moving towards mostly 1/2 hr sitcoms that its user voted pilot programs generate, while NFLX has some what different original content strategy focusing on adult srialized drama. Sitcom development is notoriously fickle (but highly lucrative for syndication market if you develop a hit with sufficient longevity) while serialized drama can stand on their own as a long-form drama (but which have very low syndication value) even if it was only 1 season (it's just a 13 hr miniseries or movie suitable for binge over a weekend).

    AMZN has gobs of money because they are smart in accumulating it, and it is an amazingly disciplined organization with tremedous analytical prowess.. At the end of the day, the economics says that with 1/6th (industry analysts place "active" Prime users at less than 5MM) of the subscriber base as NFLX, and that is the same position that Hulu is in as well, both cannot compete with the content budget that NFLX wields. That doesn't mean that 3-5 years from now, if they are able to expand that base, they can't selectively pick their spots. But in the meantime, your thesis of "they have the cash hoard to outspend them on content." is a nice sound bite but just doesn't have any basis in reality. On the same logic, OMG, Summit and Lionsgate, how could they possibly compete with the Big 6 studios to develop Twilight and Hunger Games because surely those other studios have more money than God.
    Dec 16 01:05 PM | 1 Like Like |Link to Comment