Are the Netflix and Rim falls the start of another tech bubble bursting ?

[mP]

Im not sure why but i have seen lots of news items about Netflix rapid
fall from being a darling to a has been ? It would seem that RIM stock
has also suffered a similarly dramatic fall in the past week. Is this
the because times have changed or are they indicators of something
bigger in the tech market ?

[Robert Casto]

I can't speak for RIM but for Netflix, everyone I know is upset about the price increase. They essentially doubled the cost of the service and people don't think it is worth that. They lost 1 million subscribers but that means they kept 14 million. So effectively they are doing much better. I'll be canceling and have waited just because of my sign up date. I figure a lot of people are waiting as well so there could be another million lost.

Their stock is dropping because when you loose 1 million subscribers in a month, people are going to take notice and react. They still have a great service and lots of subscribers, but I think it is a case of making their subscribers upset more than a signal that a bubble is going to burst. People want their entertainment and don't want to pay more for it. Netflix really hurt themselves by never changing the prices and then effectively doubling it overnight. Looks very greedy to many.

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[Casper Bang]

Interestingly, European consumers still long for NetFlix and do not find the new price scary in any way. I think the price has been set too low initially in the US, but that's normal when cultivating a new marked. For comparative purposes, I can opt to pay $20 extra with my cable provider and get access to around 1700 streaming movies, almost 2.5x the price of NetFlix' $7.99. I believe NetFlix has somewhere north of 50K movies, that makes NetFlix' price-value index some 73x better than my local national provider.

[mP]

Maybe they lost 1M in the USA but havent Netflix been branching out to
new markets, such as Latin America ? Surely the potential of that
market surpasses the bad news of the 1M lost !

[mP]

My theory on RIM is its just another indicator that they are fading a
bit like Nokia and that todays generation want Apple and Android
phones.

[Karsten Silz]

RIM still has a profit, though a small one, and my soon be out of cash (they went through more than half of it during the last quarter), so technically they haven't fallen yet. If RIM fails, then it's because it couldn't move fast enough in the huge changes in mobile computing that were triggered by the iPhone and the iPad.

Netflix hasn't fallen yet, either, they may have just shed some unprofitable customers. Clearly, their future is in streaming movies, so getting rid of DVD shipping may help them in the long term. As Casper mentions, they're still better than anything you can get in Europe, so that's a good sign for them. If they fail to renew movie license rights, that's worse for them.

Either way, companies fail every day. To declare this to be the "start of another tech bubble bursting" assumes that a) there's a tech bubble now and b) it's bursting. I'm not sure I'd agree with either of these two assumptions.

[Karsten Silz]

On Monday, September 19, 2011 8:43:37 AM UTC+2, Casper Bang wrote:

I believe NetFlix has somewhere north of 50K movies, that makes NetFlix' price-value index some 73x better than my local national provider.

Netflix is by far the best of the bunch. But they still have the problem that they have very new movies and old ones, but not the ones in-between. They have to stop showing them once they enter Pay TV - I think it's called the "HBO window".

I just wish Apple would set aside, say, 10 Billion of its cash and just buy Netflix and HBO and whoever owns all those movie rights so that I could really rent all movies to my Apple TV. ;-)

[mP]

While not overwhelming proof of a burst in the tech bubble ( these
words can be found some tech sites), they are reasonably well known
names in that space and their fall from grace in just a matter of days
is quite significant.

[Chris Adamson]

I don't think "bubble" is a good metaphor for this thread,
particularly if you want to bring RIM into the discussion. A "bubble"
usually refers to over-inflated prices of things, like stocks or
currency, usually in the sense of a speculative market. RIM is a long-
running company with millions of customers. They're in trouble, no
doubt about it, and the fall in the stock price is probably a fair
valuation of their uncertain prospects going forward. But that's no
bubble.

Better example of a bubble: the social couponing companies. A lot of
VC has been thrown into these, and Groupon still hopes to do an IPO.
But it's really about the potential for these companies to make big
money in the future. And it increasingly looks like a speculative
bubble that could well burst.

Netflix is in a profoundly tricky situation. Much of their value
depends on content provided by studios that don't want Netflix to get
too powerful, and forever feel their content should cost more than it
does. The old deal to get Starz/Sony/Disney content for $25 million
may have been a steal, but now Starz is taking the position that they
won't sell to Netflix at any price. The two ways of looking at this
is that Netflix is dead if they can't get the studios to license them
content at a decent price, but the studios are screwed too, because
the more they play keep-away with their stuff, the more people realize
that the most convenient source for TV and movies is software piracy:
no HBO window, no DRM, no "you can watch this on the TV but not on
your mobile device" nonsense, etc.

And yet, if they can survive this, Netflix could be in an amazing
position, because the middle of a transaction or a vertical market is
where a lot of the power (and therefore the money) is. For a content
delivery service X -- where X is one of Netflix, Comcast, DirecTV,
iTunes, or whatever -- the users can only watch whatever titles X
makes available, and the content providers can only reach the audience
served by X. The content providers likely want to turn these
middlemen against each other and prevent any one from getting too
powerful, lest they be able to drive down prices. It also doesn't
help that a lot of content providers are vertically integrated, i.e.,
they're part of conglomerates that also own distribution platforms
like cable networks and satellite broadcasters, making them de facto
Netflix competitors.

--Chris

[Steel City Phantom]

netflix's problem isn't the price increase or loss of 1M customers.  what has wall street concerned about them is the fact that there is now competition in their sector, amazon, google, hulu, etc.

netflix got their content licenses at bargain basement prices for two reasons, one their DVD rentals income and two they were the first viable company in that niche. currently their annual royalties payments is hovering about 180M to the studios.  now with the competition, especially the cash flush companies of amazon and google, investors are afraid that netflix's costs will go drastically up when those royalty contracts come to term.  

from NECN.com

"According to one analyst, Netflix's streaming content licensing costs will rise from $180 million in 2010 to a whopping $1.9 billion next year -- not encouraging for those hoping for a price roll-back."

http://www.necn.com/09/18/11/Netflix-loses-customers-as-costs-rise/landing_arts.html?blockID=564659&feedID=4214

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[Josh Berry]

Haven't people been predicting the death of netflix since they
launched? That said, if those numbers are accurate, way to go studios
for killing what should have been a profitable company.

[Karsten Silz]

The results RIM announced in June were pretty bad, too - and followed by layoffs: http://www.physorg.com/news/2011-06-motion-1q.html

[Steel City Phantom]

another piece of their problem is the mentality of current wall street.  currently wall street isn't interested in a company unless they are perpetually growing.

take your local plumbing business.  say for the sake of numbers, that plumber has a successful business and the owner puts 500k in his pocket every year.  most of us would be quite happy with that and maintain that rate.  you do low risk investments to keep your revenue and profits steady, and you maintain your level.  if the opportunity arises to grow with low risk, you take it, otherwise you are happy with your 500k a year and you do that over and over again every year till you retire.  the american dream

now lets get wall street involved and add a few zeros.  

you have a tech company that nets 500 million on 1.5 billion on revenue.  investors don't go "booya, they made 500 million, we get our $1.50 a share dividends again", they go, "fine, now next year you better net 510 million to stay viable".  now next year if they make their same 500M net, investors go oh no, their business is either flat or under-performing and start dumping shares.  a lot of investors, especially short traders are like lemmings, if one hedge fund sells off because the company didn't grow from last year, more start to sell off and their market capital tanks.  now they are on msnbc with talking heads saying they are finished and may as well close up shop because their stock price dropped and everybody loses the fact that they made a profit of $500,000,000 dollars!!!

some of you married guys can attest to this, you come home from work and announce to your wife you got that $10 an hour raise you have been fighting for, the first words out of her mouth are, but what happened to the $12?  or maybe that was just me

but back on topic, its this mentality on wall street that creates bubbles.  does netflix have to make some changes to stay viable, yes absolutely, they have to solve their looming content problems.  are they on their way out, hell no.  look at their statements, $128,447,000 in net profit for the 6 months ending in june and we are talking about them being in trouble?  are you kidding me?

On Mon, Sep 19, 2011 at 10:12 AM, Karsten Silz <karste...@gmail.com> wrote:

The results RIM announced in June were pretty bad, too - and followed by layoffs: http://www.physorg.com/news/2011-06-motion-1q.html

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[Josh Berry]

Well, to add fuel to the fire, it seems netflix is splitting out the
dvd stuff and just sent out a huge apology letter to everyone. Which
do we think will outlast the other, netflix or qwikster?

[Russel Winder]

On Mon, 2011-09-19 at 10:43 -0400, Steel City Phantom wrote:
[ . . . ]

>
> you have a tech company that nets 500 million on 1.5 billion on
> revenue. investors don't go "booya, they made 500 million, we get our
> $1.50 a share dividends again", they go, "fine, now next year you
> better net 510 million to stay viable". now next year if they make
> their same 500M net, investors go oh no, their business is either flat
> or under-performing and start dumping shares. a lot of investors,
> especially short traders are like lemmings, if one hedge fund sells
> off because the company didn't grow from last year, more start to sell
> off and their market capital tanks. now they are on msnbc with
> talking heads saying they are finished and may as well close up shop
> because their stock price dropped and everybody loses the fact that
> they made a profit of $500,000,000 dollars!!!

If inflation was at 0% then the above argument is fine. However, sadly,
inflation is rarely at that level. Thus in order to stay the same size
your income and profits have to grow by the rate of inflation, so it is
reasonable for people to expect turnover and profit to rise on a
year-by-year basis. The problem is that the financial businesses extend
this to measure "necessary increase to be seen as viable" in terms of
excess over inflation, so that it leads to extra profit for them.

[ . . . ]
>

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[Carl of the Posse]

Reed's post: http://blog.netflix.com/2011/09/explanation-and-some-reflections.html

I'm betting that Netflix's global video streaming business will have a very long term future.

The current turmoil is due to the confusion caused by the recent big changes as we split.

[Shaine Ismail]

Markets are bad with uncertainty it makes it difficult to compare different investment opportunities and generally leads to a pessimistic outlook

Regards
Shaine Ismail

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[Cédric Beust ♔]

On Sun, Sep 18, 2011 at 7:04 PM, Robert Casto <casto....@gmail.com> wrote:

I can't speak for RIM but for Netflix, everyone I know is upset about the price increase.

Speaking for myself, I'm not upset about the price increase. I don't look at price increases in the absolute: if the product is good and there's nothing around that matches it, I'm fine paying the asking price.

My main problem with Netflix is with their offering today.

DVD's: because they caved to production studios, they have a moratorium of 28 days on new releases, so they never feature brand new DVD's. And sometimes, they still don't even 28 days after they were released.

Streaming: their catalog there is pathetic. I was okay with that a couple of years ago when they were building their business and infrastructure, but today, I find it more and more useless. Streaming is great if you are fine with 90% of their selection being movies and shows that are several years old.

I know they are doing their best but the bottom line is that they are dealing with merciless partners (Hollywood) who, now that Netflix showed them the way, are realizing they don't need Netflix to implement their own services with their own pricing.

The situation looks similar to Amazon losing their battle with book publishers and as a result, selling ebooks for about the same price as paperbacks.

It makes me sad, really, I was really rooting for both Netflix and Amazon.

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[Karsten Silz]

On Monday, September 19, 2011 6:44:41 PM UTC+2, Cédric Beust ♔ wrote:

DVD's: because they caved to production studios, they have a moratorium of 28 days on new releases, so they never feature brand new DVD's. And sometimes, they still don't even 28 days after they were released.

 

Netflix buys content from six movie studios mostly, and they can dictate the terms. This is what puts Netflix business model on a shaky foundation. Just look at the Starz contract expiring, supposedly cutting Netflix off Disney and Sony content (http://money.cnn.com/2011/09/01/technology/netflix_starz/index.htm). Sorry, Carl!

Apple faces the same situation with music but is now too powerful to be ignored. And I guess movie studios don't want Netflix to dominate video like Apple dominates digital music. 

Streaming: their catalog there is pathetic. I was okay with that a couple of years ago when they were building their business and infrastructure, but today, I find it more and more useless. Streaming is great if you are fine with 90% of their selection being movies and shows that are several years old.

 

Eating at an all-you-can-eat-place will always be both cheaper per pound / kilogram of food and worse than eating a la carte. If studios can make more money selling newer movies to HBO or rent them out at $4.99 a piece, why should they sell for less to Netflix? I really can't blame the movie studios in the end.

[Karsten Silz]

On Monday, September 19, 2011 6:24:25 PM UTC+2, Carl of the Posse wrote:

Reed's post: http://blog.netflix.com/2011/09/explanation-and-some-reflections.html

Oh man, Netflix is getting hammered in the comments to that post. :-( 

[mP]

So why has Netflix taken so long to branch out to new markets like
Europe and Australia. The equivalents here in Au are a joke, they
charge more, have hundreds rather than tens of thousands of titles for
either streaming and mail. I know nobody cares about small Australia,
but at the very least Europe seems like a larger potential. Surely
licensing deals for Eu shouldnt be a #1 priority.

[Takeshi Fukushima]

I'm guessing its the same as to why their catalog is so poor here in Brazil: other companies already own the distribuition rights to the series / movies netflix can/wants to offer

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[Robert Casto]

Its kind of sad that the very people Netflix helped bring into the digital age will end up killing the messenger.

Robert Casto
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[Karsten Silz]

On Tuesday, September 20, 2011 12:06:15 AM UTC+2, mP wrote:

So why has Netflix taken so long to branch out to new markets like
Europe and Australia.

International movie rights are a mess, and you need to need to negotiate them per country. So when you say "Europe", you're talking about at least five big and different countries here (Spain, France, Italy, UK and Germany). AFAIK only Microsoft, Sony and Apple do any significant international digital movie selling / renting for that reason. Amazon, for instance, only recently started doing some Netflix-like streaming through its Lovefilm subsidiary.

[mP]

Most of what you say goes without saying, but in the end there are
only so many big names in Hollywood which control a significant
portion of the English speaking movies and so on. Either way given
Netflix is a large company they should have the ability to negotiate
this. If the companies in my part of the world can work out deals for
themselves I would expect a company that is much larger to also have
the ability close such deals.

[Steel City Phantom]

my experience with international business is a lot of times they go out of their way to keep big american companies out.  a lot of times they don't want the large american company to move in and squash the small local companies and tariffs and licensing laws are set up to support that.  

realistically europe as a whole is worth going after, but when you have to fight each individual country to get anywhere, the marginal profits and huge increases in expenses are not worth the pain.

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[Karsten Silz]

On Tuesday, September 20, 2011 9:23:16 AM UTC+2, mP wrote:

Most of what you say goes without saying, but in the end there are
only so many big names in Hollywood which control a significant
portion of the English speaking movies and so on.

There are six major studios, but they only make movies, they don't sell them. Netflix buys movie rights from distribution companies, like everybody else. Sometimes the movie studios own a distributor in a country, sometimes they have joint venture with another studio, sometimes they sell to a local distributor and sometimes they sell the rights in some territory to a movie studio that co-finances a movie (like an English one or a French one) . So at least legally, Netflix buys the rights to the same movie from say, five different companies in five different European countries.

On top of that, movie streaming is relatively new, so there are no streaming rights for the vast majority of movies - new contracts are needed. This gets more complicated because directors and actors often get a percentage of the movie profits, either because they're famous (Spielberg, Cruise) or because the worked for less salary in exchange for these profits. Now movie streaming rights mean new profits, so everybody wants a cut there, too.