Posts Tagged 'Reed Hastings'

Netflix: Another Negative Datapoint – HULU/DISH

If the CNBC report is accurate and DISH has won the bidding war for HULU, then this is another negative data point for Netflix. Let’s recap recent news flow: 1) changing subscription terms alienating investors; 2) higher content costs; 3) STARZ termination; 4) missing subscriber targets; 5) DISH offering streaming from Blockbuster; and 6) DISH reported acquisition of HULU.
NFLX has had a virtual monopoly on subscription television and movie programming. This has ended with DISH stepping into the market from a position of strength. Now there is a competitor to drive up content costs in addition to the content providers potentially offering their own services. Furthermore, as I look at the disparity between the $1.4 billion offered by DISH and the reported $4 billion offered by Google, the difference tied to contract extensions on content, it tells me that content is worth more than the technology. Content always drives subscriber growth and the providers now intend to take advantage of their positioning versus arguably cut rate pricing during NFLX’s earlier years of existence. Not all that much is known about the deal Netflix cut with Dreamworks but the number that sticks in my mind is $30 million a picture. The question is whether or not each film will be worth $30 million to them or if the price of the content is adjustable. Besides, this does not kick in for 2 years so it won’t help them now. I am not short NFLX but am considering buying puts. i have tremendous respect for Reed Hastings but he is in a tough spot. Keep in mind that the information in this article is based on news reports and not a press release or 8-K from either company.

Yesterday’s Blog – Nat Gas; Netflix (NFLX) Hastings Has A Solution for Europe; President Obama, Merkel,

My sources provided unique insights into the European Finance Ministers’ Meeting in Poland this past weekend:

Germany: I would like to invite Herr Geithner to our little party.

Poland: Whatever you say, boss.

Austria: Absolutely not. He has no personality and is way too American, always telling people what to do.

France: It’s a long trip and he probably won’t even come. He’ll probably just send a really big check as a gift with his regrets.

Belgium: Rubbish. I heard he’s in debt over his head and his boss is soon to be out of a job which means he’s also on borrowed time.

Germany: Look, I am paying for the party and I want him to come. Hopefully, he says nein and sends a check. If we don’t invite him we stand no chance of getting anything from him.

Austria: Fine. He’s your friend but I’m warning you that if he starts bossing us around, I won’t be able to hold my tongue.
And so it went.

NFLX continues to be a short, the CEO’s mea culpa aside, if for no other reason than content costs will significantly crimp margins. Perhaps the Europeans should look at Hastings strategy and separate insolvent Greece from the rest of the union, the Greeks being the NFLX version of a legacy DVD business. Apparently, Hastings doesn’t want his company’s valuation in the market to be painted with the broad brush of a declining or slower growth business so he is separating the 2 businesses. Perhaps Merkel et al should invite him to their next get together. At least he is sure to bring the entertainment.

So here I am in Nashville sitting at the gate waiting for my flight to Newark. CNN is on and everyone seems to be transfixed by the conversation leading up to the President’s speech on deficit reduction and taxes. I don’t think I have ever seen this level of interest before. Most have barely taken a bite of their deep fried bagels – everything is deep fried here, even the sushi. This is America, Nascar country as their attire attests, Dale Junior’s number featured prominently. I often wonder why they revere Junior given he’s crossed the finish line about as often as an Obama legislative proposal on taxes.

Like an Earnhardt fan, expectations were apparently incredibly high going into the weekend. But like an Earnhardt fan, the experience only resulted in disheartening disappointment. I’ve noted before that our two party system can’t agree on much these days so any expectation that the Euro’s 17 backers, some with effectively more than 2 party systems, will agree on a bailout measure for the banks and the PIIGS in a compressed time frame is folly.

Merkel is losing her mandate as yet another election pointed out this past weekend as her FDP partner suffered defeat. This conceivably puts Europe in a precarious position without a strong voice. Clearly, the coalition is fracturing, unable to even offer a carrot to the markets when they knew one was so desperately needed. Expectations are possibly higher for the FOMC to release a Q3 type statement on Weds. But even if they do, it will only provide a short term lift to the market for the economic fundamentals continue to worsen. Yes there are pockets of strength, the high end has been the savior, and the Apple ecosystem has done more than its share, but there is no disputing the declining economic picture and I would not continue to look for the upper end consumer to thrive, not in the face of higher taxes. Bullish prognosticators note the decline in the averages from the peak as more than having discounted any perceived economic malaise while hanging onto the belief that we are in a soft patch. Need I remind them that when the market rose to such heights, the global economy was on an upswing and the European sovereign mess just a twinkle in a dollar bull’s eye. Now the economy has slowed, if not reversed, and the collapse of the potential for a collapse of the Euro is real.

But the President has an answer for us. He wants to tax investment income as ordinary income, essentially removing any incentive for assumption of risk. In a perilous market environment, why put any capital at risk if there is little chance for reward? Less investment means less money sloshing around the economy and fewer jobs being created. And while we’re watching the acrimony in Washington, how about drafting the rest of us into a financial civil war, dividing the citizenry into two classes, pitting one against the other, all in the name of politics?

None of this is positive for the economy or the markets which is why I continue to be bearish

I added to my Euro short against the dollar on Thursday and still believe par is where the Euro will ultimately reside even if the new Troika comes out with a bailout package. Actually, that will further fortify my already strong conviction. Given my view on the slowing world economy – yes, even China will slow – I have exited my energy positions for the most part recalling that crude got decimated in the ’08 financial meltdown as demand suffered and speculative traders lost their appetite for risk (and their margin). The one bright spot is LNG as global demand is increasing sharply as a function of Japan and Germany using less nuclear power and Japan, China and India looking for a next generation solution to their burgeoning energy demands supposedly willing to pay as much as $20/btu all in. As more tankers and terminals are built for export, this will help sop up our overabundance of natural gas. And although I have little faith it will happen, should the administration ever propose a real energy policy, that, by the way would also create a number of jobs, natural gas would have to be in the equation.

I guess I’m not really surprised by the muted reaction in gold to all the negativity since gold is a risk asset and the appetite for risk is waning once again and margin requirements more lofty. It’s not a bad thing to see a high flying trade enter into a consolidation phase. I will keep my eye on it, looking for opportunity but will probably miss it again.


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