Netflix

[Slamz]

Thoughts on Netflix?

Their stock is waaaay down since the announced their split in billing (and increased prices) and now they're saying they're going to split their presentation into two different websites -- Netflix for streaming and "Qwikster" for DVD by mail.

Which sounds like a horrible idea and their stock tanked more today.

It's a question of whether you think Netflix is being run by poop flinging chimpanzees or whether this is All Part Of Some Clever Plan. If "a" then they're on the way to zero-ville and Blockbuster may yet have their revenge. If "b" then I could see their stock going back up by 50% pretty easily and quickly as the plan unfolds.

I'm kind of leaning towards "b" because I don't see how they could get to where they are now by being idiots. I feel they must have some ace up their sleeve and we're soon going to find out what it is.


Anyone else got some Netflix insight? They didn't change CEOs recently or anything did they?

[Snowreap]

direct streaming seems to be the wave of the future, but despite some initial success Netflix may be in trouble there. I get the impression that studios are starting to think to themselves "hmm, why can't we stream our content to customers directly, and cut out the middleman? more profits for us!" and in this case "the middleman" is Netflix.

for DVD rentals, the middleman provides a clear value -- they manage inventory and mailings -- but for a streaming business what do they offer besides one-stop shopping? and more to the point, how does one-stop shopping benefit any particular content provider? maybe most of the content providers recognize that they are offering crap, and don't want their content presented alongside better offerings from their competitors. so, they hope instead for an exclusive hit available only from their own site, that they can use to market their other crap as well.

-ken

[Vllad]

I will get a credit check for you but for me personally I think they are to risky.


Vllad

[Slamz]

direct streaming seems to be the wave of the future, but despite some initial success Netflix may be in trouble there. I get the impression that studios are starting to think to themselves "hmm, why can't we stream our content to customers directly, and cut out the middleman? more profits for us!" and in this case "the middleman" is Netflix.

This is where I feel Netflix has something up their sleeve.

There's nothing wrong with a good middleman. Amazon and Wal-Mart are kind of like the ultimate middleman. You don't want to shop at 20 different stores if you can get the best prices at one store. I don't want to visit ABC.com, NBC.com, Syfy.com, etc, etc, if I can get everything I want in one place. I especially don't want to setup accounts for billing at all these channels if one site can do it all. From the perspective of the networks, they don't have to own and operate their own server network if Netflix is running it for them and paying them for the privilege.


Netflix must have seen some real value in this move to brand "Netflix" as the entity dedicated to streaming. I wouldn't put it past the movie studios to make some sort of batshit crazy demands (like "stop distributing DVDs because I want to sell those") that forced this split in order for Netflix to move forward with streaming.

I think after all these "Oh, sorry, we suck now" announcements, Netflix is warming up to a big "TA-DA" of some sort and their stock is going to explode.


Just my optimistic hunch, though.

It's also possible that they are just idiots.

[Arsilon]

Is there is something about linking both the digital and physical formats in a single entity that was blocking their ability to do something, in particular on the digital side since that is the side they are keeping the brand name on?

Is there some sort of distribution agreement they have whereby if they deliver the physical format, ie DVD, they can't deliver something else? For example, getting their lunch eaten by Cable/Satellite providers that could offer the on demand version sooner than the DVD was available via Netflix?

That's the only thing that even remotely would make sense.

[Vanraw]

Frankly I think Netflix is bat shit crazy. These guys had the video world by the balls. They single handily changed the landscape with companies like Block buster scoffing at them as if they new nerds....

They were like FedX to shipping or MCI to telecommunications. They created a market where all the old business foggies said, :it will never work....."

Then out of the middle of nowhere, they change the pricing scheme, with no notice and lose over 1 million customers. Then scrambling to figure out the cluster fuck they created, they split the company up. Somebody in the front office forgot to take their meds.

My guess is Amazon, Zune, Apple, sony, or some unknown is going to stand up and take advantage of the cluster fuck Netflix created and in 3 years we will be saying Netwho??

I would buy into this company with a Slamz money or a 10 foot pole.

But who knows. Perhaps they know something the whole industry doesn't understand.

[Grieve]

I am very unhappy with recent events, because I had two (expensive) NFLX call spreads that were up very nicely, and now are basically worthless

However...I think the model is sound, and I think they will either rebound, or get bought out by someone else (eg Apple) at a nice premium, now they are down about 50% from their high.

They have two big problems. One is competition, but I think that is overblown. They have their software EVERYWHERE - TVs, blu-ray players, AppleTV, smart phones, tablets, etc, etc. Just about everyone has access. That is not true for Amazon or Apple or Microsoft.

The other more serious one is content cost. Now they are so successful, all the providers want to charge them more - way more. Their deal with Starz is about to expire. They offered Starz 10 times more than the original deal. Stars said no.

Still, all obstacles that can be overcome. Streaming is the future, and they have the advantage of being in everyone's home already. The stock tanked first because they raised prices (a GOOD move - they want to wean off mail subscribers) and then again because they lowered their subscriber projections. But...while the numbers for mail subscribers was down something like 30% (again, good thing), for streaming subs it was only down like 0.1%. And yet they've lost half their value...

I will likely buy some calls tomorrow.

[Slamz]

That's the thing though -- nobody else has done it. Hulu has okay TV offerings but no movies. Amazon is okay for recent movies but their overall streaming selection sucks, and I feel SURE they would stomp Netflix if the TV/movie industry gave them the ability to do so.

Something is clogging up the works for everyone that wants to do these streaming offerings. None of them are really a success story on that front.

So has Netflix found the golden key that will make the TV/movie execs sign on?

Like Arsilon said, it's the only thing that makes sense. I see no reason to break it up if they're just going to keep doing what they're doing.

[Breand]

Big investor types I respect have said Netflix is so insanely overpriced to begin with that people were nuts to invest in it. I think Netflix doesn't have a chance in hell. They don't work as two separate entities because their streaming library sucks so much ass that you need the DVDs to supplement it. I quit the DVD portion the day it was announced and this thread just reminded me to quit the streaming service. Add to that the fact that it is so INSANELY easier nowadays to find whatever content you want streaming somewhere online. Something as silly as the Pokemon cartoons, which Netflix doesnt have, is in 10 different places online for me to watch with a simple google search. Netflix will not survive advances in tech.

[Vanraw]

So has Netflix found the golden key that will make the TV/movie execs sign on?

I dont think they found the golden key, more like a search for the holy grail.....

As Grieve points out, IF they are going to lose Starz, means they are about to lose a massive portion of their streaming content.

Im not sure if its still true, but these streaming rights used to be controlled by basically 4 entities. HBO, Showtime, and Starz. It has something to do with the original agreements these guys had back when cable was new. The ability to show restricted content as part of the "movie channels" back in the day had verbiage that restricted streaming as well, even though back then there was no such thing as internet / ip streaming.

Again I dont know if that has changed, but I dont think it has.

While I agree with Grieve that the advantage netflix has with client distribution is huge, its nothing if they lose the right to stream Starz and are unable to replace it from one of the other big guys. HBO has no interest, since they are trying to use HBOGO for streaming with the intent to expand subscribers. I dont know about Showtime.

SO I go back again to the question.... What the hell are these guys doing?!!!

I always thought that Netflix next move would be to add rental and streaming of new content. Today I use ZUNE and Blockbuster for this (zune with xbox client, and block buster with Samsung blue ray player client). Had they done that, I would never need another DVD sent by mail, and I would probably end up giving Netflix more money then I do today. This seemed like a really obvious move to me. There must be some legal or political push from the studios that prevented them from doing it.

Perhaps there is a merger / purchase in the works and getting rid of the mail service would clear the way for the purchase. Perhaps they are going to buy Blockbuster..... Perhaps Amazon or Microsoft, or even Apple are going to buy netflix. All three of these guys have enough money to simply write a check..... Perhaps it will be some network like CBS, or Showtime.....

This is the only thing that makes sense to me. They are either prepping for some big M&A or they are run by a bunch of morons.

[Grieve]

I just bought a $160/$170 Jan 2011 call spread. Cost me 500 bucks, but will pay out $2000 if the stock is back over $170 by then. Break even at about $165.

The sell-off is insane. Five days ago the stock was at $210. Two months ago it was over $300. So from $300 to $131 because some of their unprofitable DVD-by mail subscribers are bailing? Crazy.

Bear in mind "the smartest guys in the room" Goldman Sacks have a buy rating and $270 price target on the stock, which they just updated yesterday. Here's what they said:

http://www.streetinsider.com/Analyst+Com...94585.html

They are basically echoing what I said - sure it's easy to find stuff on your computer, but the average person doesn't want to watch movies and TV on their computer...they want it on their TV. Netflix are way ahead of anyone else in that area.

Starz isn't that big a deal - it's about 8% of their content. They are now making deals directly with the broadcast networks and movie studios. And they money they didn't pay Starz is now freed up to buy content elsewhere. Plus they are about to expand into Europe...

[Vanraw]

Well I hope I'm wrong and you do well with the trade. I like Netflix.

Note that the biggest potential competitor that is staged and ready go with the streaming service, and has clients on TV's and blueray devices is Blockbuster. Blockbuster was purchased by DISH in a firesale for 320 million. It gives Dish the rights for streaming rental / instant watch, and Blockbuster is jumping into the streaming subscriber business in early October.

Interesting if you go to <!-- m --><a class="postlink" href="http://www.blockbuster.com/">http://www.blockbuster.com/</a><!-- m --> they are popping up all over with the "Netflix raised rates by 60%, try Blockbuster for 30 days free!!" And it includes game rental for consoles. Of course this is the mail home product. So they are targeting the 1 million subs that left Netflix. But Blockbuster also has the rental streaming business, that I have used. It works well. In addition they have playstation 3 foot print, which many people use as a netflix portal to thier TV now.

On my Samsung blue ray client, there looks to be an ability to add streaming to the existing client. The real question will be if Blockbuster / Dish can capture streaming business in any way, what will netflix do with actual competition in the streaming business, and no instant rental streaming service?

The other interesting thing is many of the TV mfg are now able to add services and clients, through online updates. So they dont get hooked into one space. Here is a list of clients.

HOME ENTERTAINMENT
2Wire
Funai
Integra
Magnavox
Memorex
Onkyo
Oppo
Philips
Samsung
Sharp
Sylvania
TiVo
Toshiba
Vizio
Western Digital
Yamaha
MOBILE
ATT
Archos
Sprint
T Mobile
Verizon
COMPUTER
Download player for PC
PC to TV
Stream on Mac or PC

In the end, DISH might be good play in this space.

[Jakensama]

What the hell does starz have that is worth streaming? Do they own lots of movies or somethings? The certainly dont have any good series - those are all showtime and hbo..

Anyway, I had only played with Netflix streaming service a bit for the first time on my best friends (ugh) apple tv when I was in NYC a couple months back, and while there was some okay stuff to watch (I know it had weeds so I guess they get showtime shows?), it seemed like their selection was far from spectacular and wouldn't really warrant itself if it wasn't a free side product of the DVD service.

Had HBO GO not started and they were able to work something out there, I'd give it more of a chance.

Although apparently their dvd service is getting a games option which is nice for console guys.

[Grieve]

Starz gave them access to Disney and Sony movies - for example, they got Toy Story 3 and Tangled really fast (probably more important to me with four young kids than most here, admittedly).

I think Apple would be a good fit to buy them - Steve Jobs is the largest shareholder of Disney/ABC, so I'm sure he could get a few content deals signed... And like you said, Netflix is already on AppleTV.

[Jakensama]

Netflix is on every mobile device known to man though, I don't know if they are going to limit themselves to just the apple market unless they can pickup a massive catalogue to do it.

Owning the tablet market is nice, but at the moment the streaming market is based on - as you said - people who want to watch their shit on the tv, and a lot more people have xboxes and ps3s then have apples - and the average joe is not watching crap on his ipad at home.

I'm very tempted to buy some stock while its low. Something tells me something is in the pipeline, IMO they probably wouldn't do something that appears so stupid without something up their sleeve as Slamz said. There are still tons of people who dont want to deal with PC streaming.

Kinda wish I wasnt stuck in the middle of my startup at the moment so I had more cash to throw around, something tells me there are going to be some opportunities in the upcoming days as world stocks tank.

[Vanraw]

Starz, controls pay-cable rights to movies from Walt Disney Studios and Sony Pictures, Which from studio perspectives.

Now that Starz is pulling its agreement, The only other "recently" released movies Netflix gets is from Paramount Pictures, Lionsgate and Metro-Goldwyn-Mayer via cable channel Epix.

The list of streaming availability is much smaller without Starz.

Supposedly Starz pulled the deal because they thought netflix service was robbing them of subscribers. I doubt this is true.

[Grieve]

If that was their concern, why are they jumping into bed with Blockbuster?

I heard they wanted Netflix to charge a extra premium to people who wanted Starz content (as with Cable TV), and Netflix wouldn't play ball.

[Vanraw]

Oh, Starz is jumping to Blockbuster???

Might be time to look at buying Dish......

[Grieve]

They have been talking, don't know if there is a deal yet. Should hear soon.

[Vllad]

Oh, Starz is jumping to Blockbuster???

Might be time to look at buying Dish......

Dish has so many serious hardware issues at best it is only a shared service option only. Quite frankly even DirectTV has the same problem but when you have every sports league locked up and the NFL package no one cares that high quality TV is like watching 60's Chinese Kung Fu movie.

If you own the latest technology in viewing quality satelite capability is severly limited.


Vllad

[Vanraw]

Dish has so many serious hardware issues at best it is only a shared service option only. Quite frankly even DirectTV has the same problem but when you have every sports league locked up and the NFL package no one cares that high quality TV is like watching 60's Chinese Kung Fu movie.

If you own the latest technology in viewing quality satelite capability is severly limited.


Vllad

But the point is that Dish's purchase of Blockbuster, moves them into the movie streaming business. If they sign on with Starz, and maintain their right to rent and buy instant play, they technically have a Superior product then Netflix. No Sat is involved in the delivery of content. Its a different business unit that may be very profitable and timed very well.

[Zouji]

<!-- m --><a class="postlink" href="http://theoatmeal.com/comics/netflix">http://theoatmeal.com/comics/netflix</a><!-- m -->

[Grieve]

So the Dish announcement came out today, and...big yawn.

Dish subscribers only (for now), 3,000 movies vs 32,000 for Netflix, no iPad/tablet app, no list of titles (I wonder why?), no Starz announcement, and so on. And if it does eventually become available to non-Dish subscribers, what hardware do you use to play the streaming titles on your TV? Even now, only half of Dish subscribers can stream movies.

I'm pretty surprised Netflix didn't shoot up in response.

[Slamz]

Netflix has held steady since that last big dive. During the Thursday market dump, Netflix held solid. So I do think there's some market confidence in them. If Netflix can deliver a good boost to their streaming selection, I think we could see a good amount of lift.

As much as I can say their streaming selection is lacking, it's still way better than everyone else's, particularly for a flat monthly fee.

[Grieve]

Well, I was sure wrong about Netflix. :oops: Or at least if I was right, other investors disagree with me. Down to $113 today, and went as low as $107.

I assume it's the Kindle Fire effect, but I don't really get that. Are people really going to dump Netflix (which most can watch on their big screen TV) to watch movies on their 7" tablet? I can't imagine so.

Oh well, I'll hold onto my call spreads, in case somebody comes along to buy them up...