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Bye bye Netflix

dante

Unabomber
Feb 13, 2004
8,807
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looking for classic NE singletrack
to sandwich's point, the increase in subscription cost will more than offset the loss of subscribers.
True, but that's a Value model, where stable profits outpace expenditures. For a Growth model (ie, something that even still has a 43 P/E), the question is not the current revenue but how fast you're going to increase that revenue. NFLX's stock price is still assuming that there's going to continue to be a massive influx of new users, and I just don't see that happening. Raising the cost to consumers can only grow your profits so much, what you really need are additional customers in order to be a high-growth stock.

tl;dr - I wouldn't touch this stock even with Mandown's portfolio.

Edit: Professionals say it much better than I can.
 
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jonKranked

Detective Dookie
Nov 10, 2005
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True, but that's a Value model, where stable profits outpace expenditures. For a Growth model (ie, something that even still has a 43 P/E), the question is not the current revenue but how fast you're going to increase that revenue. NFLX's stock price is still assuming that there's going to continue to be a massive influx of new users, and I just don't see that happening. Raising the cost to consumers can only grow your profits so much, what you really need are additional customers in order to be a high-growth stock.

tl;dr - I wouldn't touch this stock even with Mandown's portfolio.

Edit: Professionals say it much better than I can.
did you miss my post where i said they're launching in europe next year?
 

dante

Unabomber
Feb 13, 2004
8,807
9
looking for classic NE singletrack
did you miss my post where i said they're launching in europe next year?
oh, and also its going to add 43 countries be the end of this year... mexico, and central and south america.
So you buying NFLX? It could be considered quite cheap if you're predicting explosive growth... ;)

edit: From the smartmoney article I linked to earlier (although that was when the stock price was ~209, as opposed to 169 where it is now):

smartmoney said:
This year, earnings are expected to reach $4.66 a share. That means earnings would have to grow at an average of about 25% a year over the next decade to reach $45 and justify the stock's current price.
 

ridiculous

Turbo Monkey
Jan 18, 2005
2,907
1
MD / NoVA
Question regarding the Euro launch thing. Do most euroland ISP's have a pay per usage model or are they effectively unlimited like the pricing models in the USA?

Also, I hear confidence is high over there.
 

jonKranked

Detective Dookie
Nov 10, 2005
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So you buying NFLX? It could be considered quite cheap if you're predicting explosive growth... ;)
if i was going to buy, now would be the time. furthermore, they're also starting to produce their own content that will only be available on streaming.

Question regarding the Euro launch thing. Do most euroland ISP's have a pay per usage model or are they effectively unlimited like the pricing models in the USA?

Also, I hear confidence is high over there.
not sure. EU is only spain and the UK to start, but other countries will certainly follow once they ink deals with the studios.
 

TortugaTonta

Monkey
Aug 27, 2008
539
0
The thing is that streaming is a broken business model.

When Netflix buys a dvd for $20 bucks or whatever they pay, it is paid for and they can distribute forever. The longer they own it the higher the profit margins.

Netflix never owns the streaming content, they lease it. The more content on the server the more it costs, the more subscribers Netflix has the more the studios charge for content because the studios have to price in fewer dvd sales.

Basically when they were dvd only content cost went down as subsribers increased. With streaming content costs go up exponentially as subscribers increase.

Netflix simply cannot sustain profit growth with the business model.
 

jonKranked

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Nov 10, 2005
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The thing is that streaming is a broken business model.

When Netflix buys a dvd for $20 bucks or whatever they pay, it is paid for and they can distribute forever. The longer they own it the higher the profit margins.

Netflix never owns the streaming content, they lease it. The more content on the server the more it costs, the more subscribers Netflix has the more the studios charge for content because the studios have to price in fewer dvd sales.

Basically when they were dvd only content cost went down as subsribers increased. With streaming content costs go up exponentially as subscribers increase.

Netflix simply cannot sustain profit growth with the business model.
no they can't, DVDs and BD's are physical media and prone to damage, loss, theft, etc. Not to mention that have to employ thousands of people at their various distribution centers to pack and process the mailers. They've stated publicly numerous times that streaming is actually cheaper for them, hence they are shifting to a more streaming heavy business model, and ultimately they want to be streaming only.
 

jonKranked

Detective Dookie
Nov 10, 2005
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i thought it was the opposite since the rental agreements for tv shows from the studios are so high.
nope. don't forget postage costs.

Netflix currently pays up to $1 per DVD mailed round trip, and the company mails about 2 million DVDs per day. By comparison, the company pays 5 cents to stream the same movie. In other words, the company pays 20 times more in postage per movie than it does in bandwidth
http://www.techspot.com/news/42036-mail-service-costs-netflix-20-times-more-than-streaming.html
 

jonKranked

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Nov 10, 2005
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also, content acquisition costs them more than bandwidth:


According to its 10-K filing, Netflix spent $66 million in the second quarter 2010 to license streaming titles for its Watch Instantly service, compared with just $9 million that was spent in the prior-year period. (Hat tip to CNET) The acquisition of new and better content has helped drive its subscriber numbers up 42 percent over the past year, with 15 million subscribers at the end of the second quarter, compared with 10.6 million a year earlier. In addition, those subscribers are watching more streaming content than ever, with 61 percent using the service, compared to just 37 percent a year earlier.

But despite a huge increase in the amount of video streams it’s serving up through Watch Instantly, Netflix’s streaming costs haven’t increased proportionally. In the second quarter, the company said costs associated with delivery over third-party CDN networks only increased by $1 million versus the previous quarter. Netflix is benefiting from bandwidth costs continuing to fall exponentially as it grows its streaming business.
http://gigaom.com/video/the-real-cost-of-netflix-streaming-is-the-movie-not-the-bandwidth/
 

ridiculous

Turbo Monkey
Jan 18, 2005
2,907
1
MD / NoVA
nope. don't forget postage costs.
Netflix currently pays up to $1 per DVD mailed round trip, and the company mails about 2 million DVDs per day. By comparison, the company pays 5 cents to stream the same movie. In other words, the company pays 20 times more in postage per movie than it does in bandwidth

http://www.techspot.com/news/42036-mail-service-costs-netflix-20-times-more-than-streaming.html
Is this not the source you were looking for?
 

TortugaTonta

Monkey
Aug 27, 2008
539
0
You can't possibly believe those numbers. With Netflix roughly 1.2 billion if off balance sheet streaming content costs they will have roughly 2.2-2.5 billion in streaming content costs due for 2012 (not including bandwidth) and if you figure 20 million subscribers streaming an average of 2 movies a week thats 2 billion downloads a year and breaks down to roughly $1 to $1.25 a movie just in licencing.

I believe they would like to stream because they are less dependant on human labor but its just not cheaper. Why do you think everyone is jumping ship on the stock? They are pricing in on future liabilities not past performance.
 

jonKranked

Detective Dookie
Nov 10, 2005
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You can't possibly believe those numbers. With Netflix roughly 1.2 billion if off balance sheet streaming content costs they will have roughly 2.2-2.5 billion in streaming content costs due for 2012 (not including bandwidth) and if you figure 20 million subscribers streaming an average of 2 movies a week thats 2 billion downloads a year and breaks down to roughly $1 to $1.25 a movie just in licencing.

I believe they would like to stream because they are less dependant on human labor but its just not cheaper. Why do you think everyone is jumping ship on the stock? They are pricing in on future liabilities not past performance.
hey everyone else - is this just a string of incoherent gibberish, or is it just me?
 

TortugaTonta

Monkey
Aug 27, 2008
539
0
hey everyone else - is this just a string of incoherent gibberish, or is it just me?
Its just you.

Since you don't seem to understand Netflix accounting practices. . .

http://www.investopedia.com/terms/o/obsf.asp#axzz1Y9AGdJnK

They currently have about 1.4 billion off balance sheet obligations in relationship to content costs. These will have to be paid. When you factor in these costs streaming is no longer cheaper than dvd.

If you go to Netflix website and look through investor relations they talk about when obligations get put on the balance sheet and when they don't.

As I said, there is a reason people are bailing on the stock, it is not a sustainable business model.

Just google "nflx off balance sheet obligations" or something similar. There are plenty of articals that talk about Nflx accounting practices and how they have been sweeping content costs under the rug that will eventually have to be paid.
 

kazlx

Patches O'Houlihan
Aug 7, 2006
6,985
1,957
Tustin, CA
What Netflix is doing now, everyone will want to be doing in the future. Once they start offering streaming HD movies the same day they are released to the public on DVD, they will own the market...even more than they do now. Even for the prices they are charging, it is still a bargain.
 

zdubyadubya

Turbo Monkey
Apr 13, 2008
1,273
96
Ellicott City, MD
What Netflix is doing now, everyone will want to be doing in the future. Once they start offering streaming HD movies the same day they are released to the public on DVD, they will own the market...even more than they do now. Even for the prices they are charging, it is still a bargain.
But thats the problem. The major studios would never allow that. Current deals with cable companies, HBO, blockbuster, etc. are far more profitable. If netflix had to pay what the studios would want to be paid to be able to stream films same day as DVD release, then you would be looking at like $25/mo for a membership.

Redbox only deals in DVDs and THEY cant even get the studios to give them films on DVD release day b/c the studios feel their content is worth more than ($1.00/day). Blockbuster is a dead company but is staying in business because the studios are propping it up. the revenue stream for them from that distribution model is too profitable--they don't want to let it go.
 

kazlx

Patches O'Houlihan
Aug 7, 2006
6,985
1,957
Tustin, CA
But thats the problem. The major studios would never allow that. Current deals with cable companies, HBO, blockbuster, etc. are far more profitable. If netflix had to pay what the studios would want to be paid to be able to stream films same day as DVD release, then you would be looking at like $25/mo for a membership.

Redbox only deals in DVDs and THEY cant even get the studios to give them films on DVD release day b/c the studios feel their content is worth more than ($1.00/day). Blockbuster is a dead company but is staying in business because the studios are propping it up. the revenue stream for them from that distribution model is too profitable--they don't want to let it go.
They will be forced to eventually. Discs will be extinct. I'm not saying tomorrow, but at some point people will stop buying DVDs. Either that, or places will stop selling them. If you think the studios are going to keep physical media alive forever, I will just say I think you are flat wrong. They can delay it...and they are definitely trying. I'm sure the studios are shi++tin bricks to figure out the way to keep the biggest piece of the pie they can, but eventually something will give.
 

kazlx

Patches O'Houlihan
Aug 7, 2006
6,985
1,957
Tustin, CA
same. i don't know why everyone is sh*tting bricks, even with the price increase its still the best value in entertainment.
I have to say I agree with JK on this one. There's no way physically handling and distributing media can be cheaper that digitally. And their infrastructure costs will go down as communications companies upgrade and are more easily able to supply the bandwidth. Video quality will plateau at some point where no matter how much better they make the quality, it won't matter since humans won't be able to discern a difference. Ten years ago GB drives were ridiculous. Now, you can buy a 4GB thumb drive for almost nothing. 20 years ago, did anyone think that in present day companies would be giving away solid state drives with company logos for free that have more storage space that most servers did at that time? Technology marches forward. The studios either get on the train or get hit by it.
 

zdubyadubya

Turbo Monkey
Apr 13, 2008
1,273
96
Ellicott City, MD
They will be forced to eventually. Discs will be extinct. I'm not saying tomorrow, but at some point people will stop buying DVDs. Either that, or places will stop selling them. If you think the studios are going to keep physical media alive forever, I will just say I think you are flat wrong. They can delay it...and they are definitely trying. I'm sure the studios are shi++tin bricks to figure out the way to keep the biggest piece of the pie they can, but eventually something will give.
Okay... I agree that "never" was poor form. I still think that they would probably "never" give Netflix those rights however. HD streaming on public release day would be reserved for in-house distribution means. Whether that means the studios would set up their own subscription service or stick with the cable companies such as HBO, I'm not sure.

I saw a figure a few months back that showed how basically two or three corporations owned basically all of media. I would reiterate that the major studios would probably "never" let Netflix have release day streaming if they could get one of their subsidiary companies to do it for them.
 

kazlx

Patches O'Houlihan
Aug 7, 2006
6,985
1,957
Tustin, CA
It might not be Netflix, but someone will crack that nut. Netflix will have the most leverage though. I doubt the studios will peddle it themselves...it could happen, but I doubt it. My money is on the studios buckling once they get some sort of payment plan. If they can collect residuals based of viewings or something to that effect, they might be more inclined to cut deals. Their biggest fear now is getting a lump sum check up front and getting cut out when something lights it up on DVD. Look at how many movies flop in the theater and kill on DVD....Super Troopers, Office Space etc. They don't want to lose out on those residuals.
 

TortugaTonta

Monkey
Aug 27, 2008
539
0
They will be forced to eventually. Discs will be extinct. I'm not saying tomorrow, but at some point people will stop buying DVDs. Either that, or places will stop selling them. If you think the studios are going to keep physical media alive forever, I will just say I think you are flat wrong. They can delay it...and they are definitely trying. I'm sure the studios are shi++tin bricks to figure out the way to keep the biggest piece of the pie they can, but eventually something will give.
Believe it or not but the studios love to sell dvds. They have good profit margins on them and there is still a demand for them. Look at all the titles from the 70's coming out on Bluray, they wouldn't make them if nobody bought them.


And the studios are not the ones sh!tting bricks. They are in total control as people throw money at them for content.
 

kazlx

Patches O'Houlihan
Aug 7, 2006
6,985
1,957
Tustin, CA
Believe it or not but the studios love to sell dvds. They have good profit margins on them and there is still a demand for them. Look at all the titles from the 70's coming out on Bluray, they wouldn't make them if nobody bought them.


And the studios are not the ones sh!tting bricks. They are in total control as people throw money at them for content.
No ****. They love DVDs. That's where they make all their money and it's pretty obvious. They are worried they won't be able to get paid on digital content. They aren't the ones in control....
 

TortugaTonta

Monkey
Aug 27, 2008
539
0
No ****. They love DVDs. That's where they make all their money and it's pretty obvious. They are worried they won't be able to get paid on digital content. They aren't the ones in control....
Ok, so you can't be naive enough to think Netflix can stream content without paying the studios, or are you?

Google DRM
 

kazlx

Patches O'Houlihan
Aug 7, 2006
6,985
1,957
Tustin, CA
Ok, so you can't be naive enough to think Netflix can stream content without paying the studios, or are you?

Google DRM
Yes, they can just stream it without paying :rolleyes:. No, of course they can't. But, if you think DVDs are going to be around forever, you are just delusional. So they either build the infrastructure themselves to distribute the media or they peddle it to someone like Netflix and figure out a pricing structure. Is it that complicated to understand? I doubt studios are going to build something from scratch to stream content. But they are going to be forced to stream content somehow....the public demands it and demand will only get higher. It just takes one to jump the gun and make others follow suit. Please explain how you think the studios hold all the cards? Eventually, they have to make their content available the way people want to buy it and that is going to be digitally. I will go on record saying that in the next 5 years, Netflix will have major motion pictures releases streaming, either included in their package or for a fee.
 

jonKranked

Detective Dookie
Nov 10, 2005
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Its just you.

Since you don't seem to understand Netflix accounting practices. . .

http://www.investopedia.com/terms/o/obsf.asp#axzz1Y9AGdJnK

They currently have about 1.4 billion off balance sheet obligations in relationship to content costs. These will have to be paid. When you factor in these costs streaming is no longer cheaper than dvd.

If you go to Netflix website and look through investor relations they talk about when obligations get put on the balance sheet and when they don't.

As I said, there is a reason people are bailing on the stock, it is not a sustainable business model.

Just google "nflx off balance sheet obligations" or something similar. There are plenty of articals that talk about Nflx accounting practices and how they have been sweeping content costs under the rug that will eventually have to be paid.
you're the only one talking (or caring) about accounting here. I was pointing out the cost differences between the infrastructure used for the two different service delivery methods they provide.

Do you honestly think they'd be pushing towards a streaming only service if it was the more expensive of the two delivery options?

edit: there are content costs regardless of delivery method; my point is that delivering digitally is cheaper than mailing discs
 
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jonKranked

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Believe it or not but the studios love to sell dvds. They have good profit margins on them and there is still a demand for them. Look at all the titles from the 70's coming out on Bluray, they wouldn't make them if nobody bought them.
and movie studios, like record labels, are dinosaurs and luddites. they're fighting tooth and nail to cling to the business models they've spent decades creating.

netflix, hulu, spotify, (and before that, napster, kazaa, limewire, etc) have all been successful because they deliver content in a manner people want. piracy took off because the labels/studios were too slow to react once the internet generation hit.

and FTR, you may be right, if ntflx is cooking their books they will eventually cave, but there will be another service to step in and take its place, because that's the kind of service consumers want.

I can count on one hand the number of movies I've physically purchased in the last 4 years, and they were all bike films, which I bought directly from the companies that produced them.