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Netflix Q1 Results - Loss of another 1 million Disc Subs

Lee Stewart
04-23-2012, 02:46 PM
Netflix Q1 Results - Loss of another 1 million Disc Subs

Netflix has posted its earnings report for Q1 of 2012, and reveals its streaming subscriber count in the US is currently 23.4 million, after reaching 21.67 million back in January. While the company noted a net loss of about $5 million, the letter from CEO Reed Hastings and CFO David Wells claimed it is still on a "rapid return" to profitability after last year's missteps and international expansions. Worldwide it now counts a total of 26 million subscribers to the streaming service, although it lost another million or so subscribers to discs, which currently number 10.09 million. That old disc business is still highly profitable however, adding $146 million to the bottom line.

http://www.engadget.com/2012/04/23/netflix-q1-results/

Kosty
04-23-2012, 02:49 PM
Netflix Posts $5M Loss, Adds Nearly 3M Subs


23 Apr, 2012
By: Erik Gruenwedel



As expected, Netflix April 23 reported a first-quarter (ended March 31) net loss of $5 million while adding 2.95 million streaming subscribers globally, including 1.74 million in the United States.

The loss was a drop from net income of $60 million during the previous-year period. Global revenue reached $870 million, up 21% from revenue of $719 million during the same period last year.

Netflix ended the quarter with 23.4 million domestic streaming subscribers, in addition to more than 3 million international subs.

Netflix’s disc rental serivce lost 1 million subs, lowering its base to more than 10 million members. The waning rental segment nonetheless generated operating profit of $146 million — more than twice the operating income ($67 million) of domestic streaming.

International operations, which include the Caribbean, Mexico, the United Kingdom and Ireland, lost more than $103 million.

The results sent Netflix shares tumbling more than 14% to $87 a share in after-hours trading.


http://www.homemediamagazine.com/netflix/netflix-posts-5m-loss-adds-nearly-3m-subs-27051

Kosty
04-23-2012, 02:53 PM
Peter Kafka

Netflix Posts An In-Line Quarter, But Investors Balk

APRIL 23, 2012 AT 1:26 PM PT


First look at Netflix numbers: A loss of $0.08 a share on revenue of $870 million. Wall Street was expecting revenues of $855 million and a loss of $0.27 a share. The crucial number: 23.41 million domestic streaming subscribers. Netflix had told investors to expect 22.8 million to 23.6 million.

Netflix had previously said it might lose money throughout 2012, but now says things could get better sooner, and predicts that it may turn a profit in Q2.

“The improvement in the outlook is a result of continued member growth (both domestically and internationally), as well as increased efficiency of our content and marketing spending,” CEO Reed Hastings writes in his shareholder letter.

But the market isn’t happy with something – shares are down 12 percent – so we’ll try to figure out why. Perhaps this: “Q2 net adds will be below those of 2010, despite Q2 gross adds following the traditional seasonal pattern,and despite us expecting to match 2010 in annual net additions,” Hastings writes. He adds: “We see nothing new or particularly concerning this quarter to date in our member viewing, acquisition and retention. All are healthy.”
Someone disagrees.

Per usual, Hastings notes competition from Amazon and Hulu, and now Comcast’s Streampix offering. And per usual, he says he can’t see any near-term effect from those services on his business, but promises to “watch them carefully”. And again, he argues that his long-term competition comes from the cable guys, and the promise of their “TV Everywhere” strategy.

Hastings also the company’s expansion into UK and Ireland is promising. But he acknowledges what many Wall Street analysts have already concluded: Latin America will be a challenge. “The odds of us building a large, profitable business in Latin America are very good, but it will take longer than we initially thought.”
Again, here’s the “cheat sheet” from Citi’s Mark Mahaney so you can try to interpret the numbers yourself.

http://allthingsd.com/20120423/netflix-posts-an-in-line-quarter/

http://allthingsd.com/files/2012/04/citi-netflix-q1-cheat-sheet.png

HD Goofnut
04-23-2012, 03:08 PM
More proof that the average consumer doesn't care about quality and would rather watch a TV show. Sad really.

Kosty
04-23-2012, 03:13 PM
Netflix adds 3M subs and beats forecasts, but stock drops

By Daniel Frankel Apr. 23, 2012, 4:50pm No Comments


Netflix continued the expansion of its streaming business in the first quarter, adding nearly 3 million subscribers to a global base that now includes over 26 million customers.

It also beat analysts’ forecasts, increasing revenue by 21 percent to $870 million and losing only 8 cents per share (27 cents per share had been anticipated).

Still, the company’s stock got hammered in after-hours trading, with its share price dropping 14.5 percent to $87.35 as of this posting.

Netflix also saw its DVD business shrink further, shedding just over 1 million subscribers in the quarter. With just over 10 million disc subscribers left, rental of physical media generated 45.6 percent of Netflix’s revenue in the quarter, down from 52.4 percent in the fourth quarter.

Netflix executives have scheduled a 6 p.m. ET conference with investors.

More to come…
http://paidcontent.org/2012/04/23/netflix-adds-3m-subs-beats-forecasts-in-q1-but-stock-drops-double-digits/

Kosty
04-23-2012, 03:15 PM
Looking forward to seeing PSound's analysis of these numbers when they become available.

Looks to be around in line with expectations for streaming subscriber growth and disc by mail loss and revenues.

Lee Stewart
04-23-2012, 04:11 PM
More proof that the average consumer doesn't care about quality and would rather watch a TV show. Sad really.

It's reality - always been like that.

PSound
04-23-2012, 04:26 PM
1.74 net streaming additions is very strong.

About a 6.5% jump in domestic streaming revenue resulted in nearly a 30% jump in overall contribution profit, which basically proves the point of incremental subscriber increases being so valuable on the fixed cost streaming model.

International is a big surprise (IMO). Global profitability in Q2 and a new market in Q4 were totally unexpected.


The Q2 sub growth guidance combined with the yearly outlook are odd. I will wait to hear more about how they came up with those projections, but it seems weird that growth would slow that much in Q2 (especially after the strong Q1) and then take off again in Q3.

Cygnus
04-23-2012, 04:59 PM
Hulu+ added 500,000 subs this year. The streaming battle will be interesting to watch.

PSound
04-23-2012, 05:07 PM
Hulu+ added 500,000 subs this year. The streaming battle will be interesting to watch.

The thing is, I am not sure it is a "battle".

There is little overlap in content. And Hulu+ gives you more recent fare in exchange for commercials.

I have both and the decision for each one was made on its own merits. For me, the same would be true for HBO Go. I would add it and have 3 streaming sources and be happy as heck.

HBO would be happier too as right now I am working my way through Deadwood via disc by mail (and watched The Late Shift the other night). Something tells me those discs have all been depreciated and HBO is seeing zero revenue from those transactions. It is all going to Netflix and the USPS - and I would gladly pay HBO $8 a month instead.

bruceames
04-23-2012, 05:15 PM
So how much was their disc revenue for the quarter?

Lee Stewart
04-23-2012, 05:22 PM
So how much was their disc revenue for the quarter?

Approx $279 million . . . of which $146 million was profit

Cygnus
04-23-2012, 05:28 PM
Yeah they are more like indirect competitors. I don't see HBO-Go being offered at that price as the cable/sat companies would not be happy. I wonder if ESPN is thinking of having more content available online.

The thing is, I am not sure it is a "battle".

There is little overlap in content. And Hulu+ gives you more recent fare in exchange for commercials.

I have both and the decision for each one was made on its own merits. For me, the same would be true for HBO Go. I would add it and have 3 streaming sources and be happy as heck.

HBO would be happier too as right now I am working my way through Deadwood via disc by mail (and watched The Late Shift the other night). Something tells me those discs have all been depreciated and HBO is seeing zero revenue from those transactions. It is all going to Netflix and the USPS - and I would gladly pay HBO $8 a month instead.

bruceames
04-23-2012, 05:43 PM
Approx $279 million . . . of which $146 million was profit

Seems a tad low for 10 million subs. Less than $10 per month per sub. Is everybody on the 1 disc plan or are there a bunch of free trial subs in there?

mikemorel
04-23-2012, 05:51 PM
Approx $279 million . . . of which $146 million was profitI get $320 million in disc revenue...

http://i40.tinypic.com/fypedz.jpg


Guidance for next quarter...

http://i44.tinypic.com/24l0vhk.jpg

http://ir.netflix.com/results.cfm

mikemorel
04-23-2012, 05:54 PM
Seems a tad low for 10 million subs. Less than $10 per month per sub. Is everybody on the 1 disc plan or are there a bunch of free trial subs in there?In the webcast they mentioned that there are a lot of people turning their subscriptions off and on every few months.

bruceames
04-23-2012, 05:55 PM
Just read their segment information sheet, looks like disc by mail contributes 68.7% of the profits on 38.7% of the revenue. Disc is 3 1/2 times more profitable than streaming is. I think there problems really begin when that cash cow goes dry.

bruceames
04-23-2012, 05:58 PM
In the webcast they mentioned that there are a lot of people turning their subscriptions off and on every few months.

That's going to make for a lot of partial months serviced but full months paid.

PSound
04-23-2012, 06:40 PM
Seems a tad low for 10 million subs. Less than $10 per month per sub. Is everybody on the 1 disc plan or are there a bunch of free trial subs in there?

9.96 million paid disc subs. Very few trial disc subs, which makes sense as growth just isn't there.

PSound
04-23-2012, 06:44 PM
Just read their segment information sheet, looks like disc by mail contributes 68.7% of the profits on 38.7% of the revenue. Disc is 3 1/2 times more profitable than streaming is. I think there problems really begin when that cash cow goes dry.

Take a look at the trending. The streaming segment is getting more profitable with that trend expected to continue while the disc sub became less profitable in the last quarter.

Netflix is not really in any trouble anytime soon. Domestic streaming is profitable, growing and increasing margin. Disc by mail is highly profitable, but shrinking and Netflix is using that money to build their international streaming business.

International is growing quickly enough to allow Netflix to be profitable in Q2 and add another international market in Q4.

Lee Stewart
04-23-2012, 06:45 PM
Using Mikes Data in post #15 . . .

DISC

Q4/11

Revenue = $370M
Profit Contribution = $194M

Q1/12

Revenue = $320M
Profit Contribution = $146M

So Revenue dropped $50M in Q1/12 and PC dropped $48M, so almost 100% of the drop in revenue was PC

STREAMING

Q4/11

Revenue = $476M
Profit Contribution = $52M

Q1/12

Revenue = $507M
Profit Contribution = $67M

So revenue increased $31M and PC increased $15M, so just less then 50% of the increase in revenue equaled PC.

So much for the theory that all added streaming subs equal 100% in contributed profit

Ray Von Geezer
04-23-2012, 06:50 PM
Just read their segment information sheet, looks like disc by mail contributes 68.7% of the profits on 38.7% of the revenue. Disc is 3 1/2 times more profitable than streaming is. I think there problems really begin when that cash cow goes dry.True. Domestic streaming is interesting too, after all their spin about new streaming subs being almost pure profit, adding 2 million paid streaming subscribers only increased profit by $14.5 million.

Was there any mention in their statements about them buying DVD.COM? Spending a relative fortune was an odd move for a dying segment, though looking at those figures I can see why they'd want to reignite their love affair with discs.

Ray Von

Kosty
04-23-2012, 06:58 PM
In the webcast they mentioned that there are a lot of people turning their subscriptions off and on every few months.

Not much in the way of free trials with DVD by mail indeed.

The free trial for streaming is may also be a moving target as well as the would have so much of a conversion between free trial and conversion to subscribers.

Even though they are crashing in DVD by mail subscribers (that still pay the bills) and their domestic streaming customer growth is moving in the right direction.

Looks a lot healthier than what I recollect from last summer when the Quilkster debacle was in full force. That's good news.

Kosty
04-23-2012, 07:17 PM
Just read their segment information sheet, looks like disc by mail contributes 68.7% of the profits on 38.7% of the revenue. Disc is 3 1/2 times more profitable than streaming is. I think there problems really begin when that cash cow goes dry.

Its kinda a race between the two trends.

Hopefully they can keep the mass of DVD by mail subscribers and that revenue stream large enough over time to subsidize their streaming growth , content acquisition and improvements in quality.

If they can slow the attrition of their DVD by mail customers then everything looks better for them over time. That's still is a shrinking ice cube but their DVD by mail attrition at least slowed quite a bit between the 1Q 2012 and 1Q 2011 (-1.08 M) and what it was between the Q3 2011 and 4Q 2012 periods (2.76 M). That's almost one third the subscriber loss.

I noticed the other day when I helped a friend set up a new HDTV and sign up for Netflix that it was more prominent and inviting to sign up for DVD by mail as an addition to the streaming service this year, when last year it was not even mentioned IIRC for streaming only signup . My friend signed up for DVD by mail also so perhaps them is some new subscribers partially offsetting the DVD by mail subscriber loss of people dropping or going streaming only.

Al least that attrition slowed a bit from the heights it was at last summer.

Kosty
04-23-2012, 07:20 PM
Using Mikes Data in post #15 . . .

DISC

Q4/11

Revenue = $370M
Profit Contribution = $194M

Q1/12

Revenue = $320M
Profit Contribution = $146M

So Revenue dropped $50M in Q1/12 and PC dropped $48M, so almost 100% of the drop in revenue was PC

STREAMING

Q4/11

Revenue = $476M
Profit Contribution = $52M

Q1/12

Revenue = $507M
Profit Contribution = $67M

So revenue increased $31M and PC increased $15M, so just less then 50% of the increase in revenue equaled PC.

So much for the theory that all added streaming subs equal 100% in contributed profit


Good catch.

They obviously are still investing in streaming infrastructure and their content acquisition costs are still climbing rapidly.

They still seem to be managing it better than before.

Kosty
04-23-2012, 07:23 PM
True. Domestic streaming is interesting too, after all their spin about new streaming subs being almost pure profit, adding 2 million paid streaming subscribers only increased profit by $14.5 million.

Was there any mention in their statements about them buying DVD.COM? Spending a relative fortune was an odd move for a dying segment, though looking at those figures I can see why they'd want to reignite their love affair with discs.

Ray Von

They do not have to have a love affair rekindled with discs as they do not seem to have open contempt and disregard toward their disc users.

No reason to kill off a cash cow before it dies of natural causes.

Lee Stewart
04-23-2012, 08:57 PM
Good catch.

They obviously are still investing in streaming infrastructure and their content acquisition costs are still climbing rapidly.

They still seem to be managing it better than before.

The problem is . . . content acquisition costs are not going to go down while disc acquisition costs should remain the same.

bruceames
04-23-2012, 09:05 PM
True. Domestic streaming is interesting too, after all their spin about new streaming subs being almost pure profit, adding 2 million paid streaming subscribers only increased profit by $14.5 million.


Pretty much everyone knew that was BS. Content costs go up as subs do. I think even Dora could figure that one out if she gave the trouble to think about it for more than 5 seconds.

bruceames
04-23-2012, 09:08 PM
So much for the theory that all added streaming subs equal 100% in contributed profit

Not really a theory, but pure unadulterated BS.

jkkyler
04-23-2012, 09:16 PM
IMO their disc service is doomed to die as the content just gets worse every month. Hope they can get by on streaming as my prediction is within 30-36 mos disc service will no longer be profitable especially with postal woes.

Lee Stewart
04-23-2012, 09:33 PM
What ever gains they make from streaming, they lose more from the reduction of Disc Subs.

This past quarter = loss of $33M

PSound
04-23-2012, 09:38 PM
Not really a theory, but pure unadulterated BS.

What Lee is stating is a straw man, as no one stated that each new sub was equal to 100% contributing profit.

What others were asserting was that margins for streaming were poor on a per user basis, and that was the nature of the streaming business (the general assertion being costs rose linearly with new subs - AKA a variable cost model).

What was clarified was that margins improve dramatically with each incremental subscriber due to the fixed cost nature of the streaming business.

That has been proven without any doubt. As Lee illustrated against his own argument, margin for new subs was 50%. Significantly higher than the mean margin for streaming. And that is because costs are NOT variable per user (AKA - they are fixed cost).


And that trend looks to be continuing quarter over quarter with new subs being so high margin that the entire segment went from 11% margin in Q4 to 13% margin in Q1 with expectations of 15% contribution margin in Q2 improving by 100 basis points each quarter for the remainder of the year.

Sorry Bruce, but you are wrong here. New subscribers are significantly higher margin due to the fixed cost nature and the numbers prove it unquestionably.

Kosty
04-23-2012, 09:38 PM
Pretty good read at The Wrap.

Its a bit more pessimistic than other assessments I have seen but it places some of the issues into perspective including the box Netflix has placed itself in for the price point for streaming at $8 a month and their need to keep gaining subscribers to generate revenue from streaming since they really can't raise the price on their SVOD plans right now since the issues they had in 2011.





That Big Netflix Comeback? Looking Less Likely

http://www.thewrap.com/sites/default/files/imagecache/scale_width_640/main_image/netflix.inside_0.jpg

Netflix’s stock plummeted in after-hours trading on Monday, revealing persistent unease about the future of the company and doubts about the viability of its business model.

Once the darling of the home entertainment industry, the company has had a brutal year, thanks to a series of major missteps in its attempt to transition from discs to streaming.

The negative response to a better-than-expected earnings report didn't do anything to dispel worries that a major bounce-back remains elusive.


With its subscriber base not growing as some had hoped, CEO Reed Hastings (pictured below) continues to bank a recovery on an expansion internationally and investment in more original programming, like the upcoming highly anticipated revival of "Arrested Development."

But those cost money, which, without ad revenue, necessitates a constant and robust influx of new subscribers.

Currently, Netflix boasts 23.4 million domestic subscribers. Another 3 million are international.

Netflix’s current share price “is based on some unsustainable growth view that it can grow 6, 7, 8 million domestic streaming subscribers a year,” Michael Pachter, an analyst with Wedbush Securities, told TheWrap.

“They have to believe there’s a greater fool out there who’ll take whatever crap Netflix throws at you. But there are not many millions more of those people.”

When Netflix’s earnings call on Monday opened with a question about its subscriber projections, the company estimated 7 million for the year. Yet while it added 1.7 million domestic subscribers in the first quarter, its projection for the second quarter was underwhelming: fewer than in the same frame from 2010.

Trouble is, analysts want to see continued growth, not a decline. If the numbers are going down, how are they getting to 7 million by year’s end?

Hastings and Wells said growth figures were consistent with “historic patterns” and talked a lot about subscriber growth being seasonal.

When TheWrap followed up with Netflix spokesman Steve Swaysey, he said much the same thing, adding that the second quarter is usually the worst for adding subscribers.

Then why did the company’s stock price fall?

“The business is growing," he said. "We had a terrific quarter, but some people did not fully understand the seasonal metric we provided.” Translation: It's everyone else's fault.

Make no mistake, Netflix’s future is about that subscriber number.

“If they can get incremental subscribers, it can be a highly profitable model, but it’s hard to predict quarter to quarter,” Aaron Kessler, an analyst with Raymond Jones & Associates, told TheWrap.

Kessler believes the peak on subscribers is 40 million. That’s a far cry from the 60 to 90 million Hastings has said Netflix could attract.


One reason Netflix’s growth may hit a wall is the rise of challengers. Hulu and Amazon both stream movies and TV shows -- and Hulu actually offers in-season shows, not available on Netflix. What's more, Hastings said on Monday he still expects Jeff Bezos & Co. to launch a standalone streaming service.

Adding to the competition, Verizon and Coinstar, owner of Redbox, just announced a partnership that many see as a threat.

Meanwhile, Netflix’s partners in all of this – the studios – continue to demand more to justify handing off their libraries, forcing renegotiations such as the one that caused Netflix to lose its massive deal with Starz. That deal included a large number of Sony films.

Pachter says Netflix has to raise the prices for its streaming service to work. “Their business model is broken because they have ordained that the price you will pay for unlimited streaming is $8 a month,” he said.

And raising the prices right now is not an option. Last time Netflix changed its pricing, trying to spin off the DVD business as a separate business called "Qwikster" -- last summer -- it spawned an animated consumer backlash that persisted as Hastings made a series of public-relations missteps.

“The brand is recovering well, but we still a ways to go," Swaysey said. As part of sustaining that recovery, Hastings said Monday that the company would not be raising prices.

The only choice left is to try to add subscribers, and with a growing crop of rivals, the company has to differentiate itself. Thus, the investment in original series, following in the footsteps of premium subscription channels like HBO and Showtime.

The first, “Lilyhammer,” a mob series starring E Street Band-er and "Sopranos" alum Steven Van Zandt, launched in February.

Coming up are "Arrested Development," with the original cast returning for 10 shows and talk of a several-season future; “House of Cards” from David Fincher, starring Kevin Spacey; and the Eli Roth-produced "Hemlock Road."

Of course, all of these take money to produce; without ad revenue, the company has to hope the offerings will bring in enough new subscribers to foot the bill. The company has so far refused to release any ratings on "Lilyhammer."

Another one of Netflix’s approaches is taking on the international market. It has already launched in the U.K., Ireland, Canada and Latin America.

Its paid international subscriber base grew by almost 1 million in the quarter, and analysts agreed that both Canada and the U.K. could be fruitful new bases. But Latin America has proven to be a bit more difficult.

“The odds of us building a large, profitable business in Latin America are very good, but it will take longer than we initially thought,” Hastings and Wells said in a letter to shareholders.

And these new expansions do more than boost Netflix’s cache. They cost money. To pay for that, the company needs more subscribers.

Sounds like we’re back at the start of the problem.

http://www.thewrap.com/media/article/netflixs-rejection-wall-street-continues-37227

Kosty
04-23-2012, 09:44 PM
It seems though that the assumption that there is not a variable cost component to adding new Netflix streaming subscribers is just not accurate. That's probably due to needed infrastructure improvements or cost of content acquisition.

The numbers clearly indicate that its not a fixed cost to add a streaming subscriber there is a variable component to it as well.

1stSilverado
04-23-2012, 10:32 PM
I agree that this sounds bad for Netflix with the loss of subs for disc rentals, but wouldn't that mean that it sounds worse for OD as a whole?
I am sure that Netflix is marketing and promoting the disc rental side of their business, but with content being what it is, who wants to rent crap.
Also why should Netflix gather blame for loss of subs when the studios have promoted, marketed, and sent out trailers to get the movie known to the consumers. If they couldn't get sales/rentals then how in the heck could Netflix step in and do better?

Lee Stewart
04-23-2012, 10:32 PM
What Lee is stating is a straw man, as no one stated that each new sub was equal to 100% contributing profit.

What others were asserting was that margins for streaming were poor on a per user basis, and that was the nature of the streaming business (the general assertion being costs rose linearly with new subs - AKA a variable cost model).

What was clarified was that margins improve dramatically with each incremental subscriber due to the fixed cost nature of the streaming business.

That has been proven without any doubt. As Lee illustrated against his own argument, margin for new subs was 50%. Significantly higher than the mean margin for streaming. And that is because costs are NOT variable per user (AKA - they are fixed cost).


And that trend looks to be continuing quarter over quarter with new subs being so high margin that the entire segment went from 11% margin in Q4 to 13% margin in Q1 with expectations of 15% contribution margin in Q2 improving by 100 basis points each quarter for the remainder of the year.

Sorry Bruce, but you are wrong here. New subscribers are significantly higher margin due to the fixed cost nature and the numbers prove it unquestionably.

How can you have a "fixed cost nature of the streaming business" when they are adding new content all the time? Each time they add content, their cost goes up. The only thing that is "fixed" is the amount they pay per month/quarter/whatever over the term of the contract per content provider.

One more time - maybe THIS time it will sink in . . .

FIXED COST

Definition:

A periodic cost that remains more or less unchanged irrespective of the output level or sales revenue, such as depreciation, insurance, interest, rent, salaries, and wages.

http://www.businessdictionary.com/definition/fixed-cost.html

If you insist on using Accounting Terms, at least understand what they mean. :banghead:

Lee Stewart
04-23-2012, 10:36 PM
I agree that this sounds bad for Netflix with the loss of subs for disc rentals, but wouldn't that mean that it sounds worse for OD as a whole?
I am sure that Netflix is marketing and promoting the disc rental side of their business, but with content being what it is, who wants to rent crap.
Also why should Netflix gather blame for loss of subs when the studios have promoted, marketed, and sent out trailers to get the movie known to the consumers. If they couldn't get sales/rentals then how in the heck could Netflix step in and do better?

What Netflix is losing in Disc Subs, Redbox is gaining in Kiosk rentals

PSound
04-23-2012, 10:37 PM
How can you have a "fixed cost nature of the streaming business" when they are adding new content all the time? Each time they add content, their cost goes up. The only thing that is "fixed" is the amount they pay per month/quarter/whatever over the term of the contract per content provider.

One more time - maybe THIS time it will sink in . . .

FIXED COST

Definition:



http://www.businessdictionary.com/definition/fixed-cost.html

If you insist on using Accounting Terms, at least understand what they mean. :banghead:

Oh Lee... Once again you provide the ammunition against your own argument.

You stated:

The only thing that is "fixed" is the amount they pay per month/quarter

Fixed cost:

A periodic cost that remains more or less unchanged irrespective of the output level or sales revenue, such as depreciation, insurance, interest, rent, salaries, and wages.

While in practice, all costs vary over time and no cost is a purely fixed cost, the concept of fixed costs is necessary in short term cost accounting.



Do you get it yet? As the amount they pay is fixed over the quarter (a time period), the Netflix streaming business is a fixed cost model.

PSound
04-23-2012, 10:40 PM
BTW... I already clarified the above the last time I tried to provide some education on the fixed cost model.

Fixed cost does not mean permanent, unchanging or forever. It means it is not variable within a period based on volume. Indeed, Netflix streaming is a classic example of a fixed cost model.

bruceames
04-23-2012, 10:41 PM
Sorry Bruce, but you are wrong here. New subscribers are significantly higher margin due to the fixed cost nature and the numbers prove it unquestionably.

Go look at the stat sheet again. Those "fixed" costs went up by $30 million.

bruceames
04-23-2012, 10:43 PM
BTW... I already clarified the above the last time I tried to provide some education on the fixed cost model.

Fixed cost does not mean permanent, unchanging or forever. It means it is not variable within a period based on volume. Indeed, Netflix streaming is a classic example of a fixed cost model.

Content costs can and do go up within a reporting period as well.

Lee Stewart
04-23-2012, 10:49 PM
Oh Lee... Once again you provide the ammunition against your own argument.

You stated:



Fixed cost:




Do you get it yet? As the amount they pay is fixed over the quarter (a time period), the Netflix streaming business is a fixed cost model.

No it isn't - it would be if they never added content . . . but when they do - their cost GOES UP.

It's as plain as the nose on your face - maybe that's why you don't see it!

PSound
04-23-2012, 10:53 PM
Go look at the stat sheet again. Those "fixed" costs went up by $30 million.

Different reporting period.

Again - FIXED COSTS DO NOT MEAN PERMANENT.

They mean fixed within a reporting period (not variable based on revenue within the reporting period).

PSound
04-23-2012, 11:00 PM
Content costs can and do go up within a reporting period as well.

Not on the basis of revenue/volume (added subs).


Bruce, you are a smart guy so I know you will be able to grasp this if you take a step back and understand what fixed cost actually means.

It does not mean permanent. It does not mean never changing.


The primary difference between the variable cost model and fixed cost model is that core cost of goods increase linearly (or close to it) based on revenue.

Apple cannot sell an iPad without producing it and paying those costs of goods. Those cost of goods (COGS) per item may vary slightly based on volume, but the basic premise of an outlay of COGS for each device sold means that overall costs are variable based on number of devices sold.

Each and every product requires a certain (more or less known) cost in order to generate the revenue. Costs go up more or less linearly based on revenues.


Variable cost means that costs do not rise linearly within the reporting period based on revenue. That is why each new sub generated margin multiple fold higher than the margin of base subs.

Lee Stewart
04-23-2012, 11:08 PM
Different reporting period.

Again - FIXED COSTS DO NOT MEAN PERMANENT.

They mean fixed within a reporting period (not variable based on revenue within the reporting period).

:banghead:

You CANNOT look at quarterly results as an "island unto themselves." They MUST be compared to past quarterly results. THAT is how Accounting and Finance work PSound.

PSound
04-23-2012, 11:09 PM
No it isn't - it would be if they never added content . . . but when they do - their cost GOES UP.

It's as plain as the nose on your face - maybe that's why you don't see it!

Read your own links Lee.

The concept of fixed cost vs variable cost means that revenue is the driver. You may not have the acumen to ever comprehend things, and that is OK. But your own links clearly spell out exactly why Netflix streaming is a fixed cost model. Just like you showing the 50% margin for subs added in Q1 vs the ~10% margin for base subs also clearly demonstrates that Netflix streaming is a fixed cost model.

Either you are open to learning, or you are not. If you have a genuine interest in gaining knowledge, I will engage you on this topic. If not, I will not engage you.

PSound
04-23-2012, 11:12 PM
Not on the basis of revenue/volume (added subs).


Bruce, you are a smart guy so I know you will be able to grasp this if you take a step back and understand what fixed cost actually means.

It does not mean permanent. It does not mean never changing.


The primary difference between the variable cost model and fixed cost model is that core cost of goods increase linearly (or close to it) based on revenue.

Apple cannot sell an iPad without producing it and paying those costs of goods. Those cost of goods (COGS) per item may vary slightly based on volume, but the basic premise of an outlay of COGS for each device sold means that overall costs are variable based on number of devices sold.

Each and every product requires a certain (more or less known) cost in order to generate the revenue. Costs go up more or less linearly based on revenues.


Variable cost means that costs do not rise linearly within the reporting period based on revenue. That is why each new sub generated margin multiple fold higher than the margin of base subs.

Or put another way, it would be impossible for Netflix streaming to be a variable cost model when the base subs (Q4) were 10% margin and all added subs in Q1 were 50% margin. That is simply impossible in a variable cost model (added subs would be at or very close to the existing margins, or ALL the margin would shift the same way if the variable cost dropped).

Lee Stewart
04-23-2012, 11:17 PM
Read your own links Lee.

The concept of fixed cost vs variable cost means that revenue is the driver. You may not have the acumen to ever comprehend things, and that is OK. But your own links clearly spell out exactly why Netflix streaming is a fixed cost model. Just like you showing the 50% margin for subs added in Q1 vs the ~10% margin for base subs also clearly demonstrates that Netflix streaming is a fixed cost model.

Either you are open to learning, or you are not. If you have a genuine interest in gaining knowledge, I will engage you on this topic. If not, I will not engage you.

Sorry PSound, your "Fuzzy" Accounting just doesn't cut it with me.

Lee Stewart
04-23-2012, 11:27 PM
PSound - let me show you something:

Q4/11

20.15M Paid Streaming Subs
$476M in Revenue

$23.62 per Paid Streaming Sub

Q1/12

22.02M Paid Streaming Subs
$507M in Revenue

$23.02 per Paid Streaming Sub

If Netflix's streaming business was a fixed cost, then the revenue per paid streaming sub would not change . . . but it did. It decreased $.60 per paid streaming sub in Q1/12.

dangerdoc
04-24-2012, 07:22 AM
More proof that the average consumer doesn't care about quality and would rather watch a TV show. Sad really.


I came home the other day and the kids were streaming a movie. We own the Blu Ray disc. The disc was sitting on top of player. They were using the player to stream the movie. I guess the remote control wouldn't get up and put the disc in the player for them.

Kids nowadays.

Thankfully, we don't have a cap on our data yet.

Lee Stewart
04-24-2012, 07:34 AM
I came home the other day and the kids were streaming a movie. We own the Blu Ray disc. The disc was sitting on top of player. They were using the player to stream the movie. I guess the remote control wouldn't get up and put the disc in the player for them.

Kids nowadays.

Thankfully, we don't have a cap on our data yet.

They are wise beyond their years . . .

No waiting for the disc to load. No forced trailers to watch - just hit play and the movie starts.

PSound
04-24-2012, 08:53 AM
PSound - let me show you something:

Q4/11

20.15M Paid Streaming Subs
$476M in Revenue

$23.62 per Paid Streaming Sub

Q1/12

22.02M Paid Streaming Subs
$507M in Revenue

$23.02 per Paid Streaming Sub

If Netflix's streaming business was a fixed cost, then the revenue per paid streaming sub would not change . . . but it did. It decreased $.60 per paid streaming sub in Q1/12.

No where in your post do you even factor in cost. ARPU alone has absolutely nothing to do with fixed cost vs variable cost. The fact that ARPU went down while margin went up (and based on what we know about how Netflix acquires streaming content) AGAIN reinforces that Netflix streaming is a fixed cost model.


Again, you fundamentally do not understand the concept of fixed cost vs variable cost. You have demonstrated that multiple times in this thread. I am done with you on this topic Lee. Your comprehension is off on this topic and for whatever reason you have zero desire to improve your understanding.

PSound
04-24-2012, 09:43 AM
I am going to provide an example of fixed cost vs variable cost for illustrative purposes using an example of a movie theater. These are fictitious businesses, but should explain the difference between models.

Movie theater with variable cost:

Movie theater has an agreement with the studios to give them $5 for every ticket sold. The theater sells tickets to see the movie for $7. No matter how many tickets they sell, they make $2 per ticket sold (minus overhead, etc).

If they sell 5 tickets, they bring in $35 in revenue. give $25 to the studios and net $10.

If they sell 20 tickets, they bring in $140 in revenue, give $100 to the studio and net $40 - $2 ticket as the variable cost means they ALWAYS make $2 a ticket. It is simply not possible to sell that $7 ticket without generating $5 in costs.


Movie Theater with fixed cost:

Theater buys right to display movie for $50.

They sell tickets to the movie for $5 each.

If they sell 5 tickets, then bring in $25 in revenue, give $50 to the studio and incur a net loss of $25.

If they sell 12 tickets, they bring in $60 in revenue, give $50 to the studio and net $10.

If they sell 20 tickets, they bring in $100 in revenue, give $50 to the studio and net $50.

The fixed cost means that the amount made per ticket changes dramatically with scale of revenue. With 12 tickets sold, the income per ticket averages out to $.83 a ticket. With 20 tickets sold, the income per ticket averages out to $2.50 per ticket. With the fixed cost model, tickets sold do not directly trigger the direct rise in costs (as above where a $7 ticket cannot be sold without triggering a direct $5 cost).


Now, the fixed cost model does not exclude changes in costs at different times. During another period/showing it might be $60 for the theater to gain rights to display the movie.

And of course the illustration above does not take into account overhead, marketing, etc for either model. But it does clearly show the basic difference between fixed cost and variable cost.

In variable cost, costs rise linearly with revenue within a reporting period (something cannot be sold without generating direct costs).

In fixed cost, costs do not rise directly with generated revenue within a reporting period. Revenue generated does not trigger an immediate direct rise in costs.

Cygnus
04-24-2012, 09:46 AM
Bingo...someone gets it! One of the reasons why I never bought movies. I can't believe ppl are not outraged over the ads on discs for a movie you paid for.

They are wise beyond their years . . .

No waiting for the disc to load. No forced trailers to watch - just hit play and the movie starts.

PSound
04-24-2012, 09:51 AM
I came home the other day and the kids were streaming a movie. We own the Blu Ray disc. The disc was sitting on top of player. They were using the player to stream the movie. I guess the remote control wouldn't get up and put the disc in the player for them.

Kids nowadays.

Thankfully, we don't have a cap on our data yet.

This is why I think UltraViolet could help sell through. Anything to boost consumption of purchased material is a big plus to value, which should boost overall sales.

Make watching your collection as easy, seamless and portable as picking a movie from Netflix, and consumption should increase.

Kosty
04-24-2012, 09:58 AM
I agree that this sounds bad for Netflix with the loss of subs for disc rentals, but wouldn't that mean that it sounds worse for OD as a whole?

I am sure that Netflix is marketing and promoting the disc rental side of their business, but with content being what it is, who wants to rent crap.



That's kinda one of the issues of concern.

For the past year or so. Netflix has really not at all done any marketing advertising or promotion of the disc by mail side of the business.

Its promotional efforts have been directly exclusively at the unlimited streaming side of the business and it have seemed to many that it almost was actively discouraging the use of its disc by mail business.

Redbox is using the same content and its physical disc rental business is rapidly expanding and overall this year the releases have been better in general than in the same period last year. Redbox has been expanding while Netflix physical side has been in decline as they have switched their emphasis on streaming and away from disc by mail.


Also why should Netflix gather blame for loss of subs when the studios have promoted, marketed, and sent out trailers to get the movie known to the consumers. If they couldn't get sales/rentals then how in the heck could Netflix step in and do better?

The studios have actively tried to separate out their promotion of sell through and that of Netflix and Redbox rental activity by extending out their titles to a 8 week rental delay after sell through DVD and Blu-ray release. The studios care about promoting sell through, they don't care as much about promoting rental.

Its probably a fair assumption and possible observation that the rental delay has hurt Netflix a bit for both streaming and disc by mail as well as Redbox but it does not seemed to have affected Redbox at all in their growth over time.

Studio sell through has done much better this year for DVD and Blu-ray than last year, so Netflix disc by mail is the outlier.

Kosty
04-24-2012, 10:04 AM
BTW... I already clarified the above the last time I tried to provide some education on the fixed cost model.

Fixed cost does not mean permanent, unchanging or forever. It means it is not variable within a period based on volume. Indeed, Netflix streaming is a classic example of a fixed cost model.

But your argument is not talking about the costs being fixed over a short term. You are deliberately using the same phrase when talking about the growth of the streaming business in the longer term.

In this case those costs went up from quarter to quarter so talking that those costs as being fixed when talking about subscriber acquisition is kinda nonsensical. The costs for streaming are obviously going up as their streaming user base expands, no matter if any specific contracts are fixed for the quarterly term. That's the bottom line.

HD Goofnut
04-24-2012, 10:27 AM
They are wise beyond their years . . .

No waiting for the disc to load. No forced trailers to watch - just hit play and the movie starts.

In 480, with plenty of compression, and DD 2.0 or 5.1. Yep, wise beyond their years.:p Even my three year old can see the difference even if she pronounces it Boo-Ray.

Kosty
04-24-2012, 10:30 AM
Read your own links Lee.

The concept of fixed cost vs variable cost means that revenue is the driver. You may not have the acumen to ever comprehend things, and that is OK. But your own links clearly spell out exactly why Netflix streaming is a fixed cost model. Just like you showing the 50% margin for subs added in Q1 vs the ~10% margin for base subs also clearly demonstrates that Netflix streaming is a fixed cost model.

Either you are open to learning, or you are not. If you have a genuine interest in gaining knowledge, I will engage you on this topic. If not, I will not engage you.

Just because you want to make the assumption that the streaming business is more a purely fixed cost model than a variable cost model than it seems to be does not make your analysis right and everyone else wrong, or not having the ability to understand the concepts.

Not agreeing with you does not make others less worthy or less intellectual or even wrong here.

The streaming business for Netflix is clearly showing elements of having variable costs associated with its streaming user base expanding and clearly has greater costs associated with streaming that is dependent on subscriber growth. Even if those costs for their streaming side of the business are less variable, they are not absolutely fixed.

They obviously are increasing and varying from quarter to quarter as Netflix infrastructure and content acquisition costs continue to rise and as their negotiations with the studios and other content providers get more difficult over time. Streaming is clearly not a pure fixed cost model even if it is more so than the disc by mail side with its postal costs of servicing its users.

So even if the streaming side has less variable elements in the servicing costs of an additional user, their are other threshold and content and infrastructure costs that clearly are variable that apply to that streaming business as a whole.

You just cannot hand wave those obviously increasing variable costs away and focus only on single user additions.

Theoretically, if the content for a period is already purchased and the network infrastructure is in place, a new streaming subscriber costs little in variable costs to service.

Unlike a new disc by mail user, there is no major variable costs like postage to eat up profits. But most postal disc by mail users do not max out their service and therefore as a whole that side of the business is still very profitable.

But Netflix just cannot add new steaming subscribers at no variable costs overall at this point in time. Even though a single user has low variable costs because they have no postal costs, the streaming business for Netflix now has some highly variable elements as it has grown over time.

As the streaming business at Netflix has grown, the studios have noticed it and since the first sale doctrine does not apply to digital they have variably increased Netflix's streaming content costs over time. They lost Straz in part because their streaming business became larger and the studios and Straz took notice. At certain thresholds of subscribers, the streaming business has to have more infrastructure support and costs more to handle more users. Those are variable costs above the cost to service one more additional user.

Even if the content price is fixed for a period, its obviously costing more over time and in the longer term is clearly a variable element that is costing more over time.

Now its certainly possible that there will be a point in the near future that the content costs will stabilize and become more fixed and the Netflix infrastructure will be in place to support the maximum amount of possible users. In that case, indeed the streaming business will convert into a more fixed cost model with little to no variable costs for increasing subscribers.

But that's in the theoretical future and clearly is not the reality that is facing Netflix right now. The reality at the moment is that more subscribers for streaming also are needed some increased variable costs for streaming as a whole even though individual additional users have mostly fixed costs.

Kosty
04-24-2012, 10:35 AM
In 480, with plenty of compression, and DD 2.0 or 5.1. Yep, wise beyond their years.:p Even my three year old can see the difference even if she pronounces it Boo-Ray.

LOL :D

I've had friends say that their young kids call it the same thing!

Boo-ray!

Lee Stewart
04-24-2012, 01:12 PM
I am going to provide an example of fixed cost vs variable cost for illustrative purposes using an example of a movie theater. These are fictitious businesses, but should explain the difference between models.

Movie theater with variable cost:

Movie theater has an agreement with the studios to give them $5 for every ticket sold. The theater sells tickets to see the movie for $7. No matter how many tickets they sell, they make $2 per ticket sold (minus overhead, etc).

If they sell 5 tickets, they bring in $35 in revenue. give $25 to the studios and net $10.

If they sell 20 tickets, they bring in $140 in revenue, give $100 to the studio and net $40 - $2 ticket as the variable cost means they ALWAYS make $2 a ticket. It is simply not possible to sell that $7 ticket without generating $5 in costs.


Movie Theater with fixed cost:

Theater buys right to display movie for $50.

They sell tickets to the movie for $5 each.

If they sell 5 tickets, then bring in $25 in revenue, give $50 to the studio and incur a net loss of $25.

If they sell 12 tickets, they bring in $60 in revenue, give $50 to the studio and net $10.

If they sell 20 tickets, they bring in $100 in revenue, give $50 to the studio and net $50.

The fixed cost means that the amount made per ticket changes dramatically with scale of revenue. With 12 tickets sold, the income per ticket averages out to $.83 a ticket. With 20 tickets sold, the income per ticket averages out to $2.50 per ticket. With the fixed cost model, tickets sold do not directly trigger the direct rise in costs (as above where a $7 ticket cannot be sold without triggering a direct $5 cost).


Now, the fixed cost model does not exclude changes in costs at different times. During another period/showing it might be $60 for the theater to gain rights to display the movie.

And of course the illustration above does not take into account overhead, marketing, etc for either model. But it does clearly show the basic difference between fixed cost and variable cost.

In variable cost, costs rise linearly with revenue within a reporting period (something cannot be sold without generating direct costs).

In fixed cost, costs do not rise directly with generated revenue within a reporting period. Revenue generated does not trigger an immediate direct rise in costs.

You first example is a Fixed cost not a Variable cost. Their fixed cost is $5 per ticket. If they sell 1 ticket or 1000 tickets, their cost never changes. That is the definition of FIXED COST. Not the outcome of how many tickets are sold.

To make it a Variable cost it would be like this:

1 to 100 tickets sold, cost = $5
101 to 500 tickets sold, cost = $4
501 to 1000 tickets sold, cost = $3

cost

the price paid to acquire, produce, accomplish, or maintain anything

http://dictionary.reference.com/browse/cost?s=t

Dave J
04-24-2012, 02:18 PM
Reviewing the quarterly results just makes you shake your head over the eagerness of Netflix to kill off their disc business. Why the heck they don't nurture that incredibly profitable side until the conclusion of its natural lifespan is beyond me.

HD Goofnut
04-24-2012, 02:41 PM
Reviewing the quarterly results just makes you shake your head over the eagerness of Netflix to kill off their disc business. Why the heck they don't nurture that incredibly profitable side until the conclusion of its natural lifespan is beyond me.

Because they want to continue to tap into that immediate gratification/portable market even more. I don't agree with it either, but there it is.

Lee Stewart
04-24-2012, 03:10 PM
Reviewing the quarterly results just makes you shake your head over the eagerness of Netflix to kill off their disc business. Why the heck they don't nurture that incredibly profitable side until the conclusion of its natural lifespan is beyond me.

Look at it from a cost/expense issue. What infrastructure is required to do a disc-by-mail program versus a streaming program?

h0mi
04-24-2012, 04:09 PM
They must be worried about the impacts to the mail order business once those postal service cuts/postage increases takes place (which reminds me, wasn't it supposed to be in April that saturday delivery went poof? )

They have a huge leg up in terms of digital distro- apps on pretty much every device out there.

bruceames
04-24-2012, 04:40 PM
Reviewing the quarterly results just makes you shake your head over the eagerness of Netflix to kill off their disc business. Why the heck they don't nurture that incredibly profitable side until the conclusion of its natural lifespan is beyond me.

Beyond me as well. Sure, streaming is the future but they should be milking and nurturing the DVD side because that's where most of their profit is coming from. Why or how much longer is not nearly as important as the fact that it is much more profitable RIGHT NOW.

Money should be doing the talking here but instead it's the BS.

Kosty
04-24-2012, 05:19 PM
Look at it from a cost/expense issue. What infrastructure is required to do a disc-by-mail program versus a streaming program?

Their disc by mail infrastructure is already built and bought and paid for.

Its obviously still operating at a profit.

No reason to kill it off why its still making money.

Kosty
04-24-2012, 05:24 PM
They must be worried about the impacts to the mail order business once those postal service cuts/postage increases takes place (which reminds me, wasn't it supposed to be in April that saturday delivery went poof? )

They have a huge leg up in terms of digital distro- apps on pretty much every device out there.

That has to be a concern, but they already have done that switch by separating out the digital streaming part and getting the disc by mail people to pay more. Their streaming business will naturally gain from consumers that will not like the loss of Saturday service. But that would not be seen as Netflix's fault.

Kosty
04-24-2012, 05:27 PM
Reviewing the quarterly results just makes you shake your head over the eagerness of Netflix to kill off their disc business. Why the heck they don't nurture that incredibly profitable side until the conclusion of its natural lifespan is beyond me.

Beyond me as well. Sure, streaming is the future but they should be milking and nurturing the DVD side because that's where most of their profit is coming from. Why or how much longer is not nearly as important as the fact that it is much more profitable RIGHT NOW.

Money should be doing the talking here but instead it's the BS.

No reason to irritate the disc only customers and push them away when they are still profitable before they attrit naturally on their own.

Especially with the PR speak of last summer.

I agree with you guys totally.

I like the fact that Netflix streaming is getting better over time. But I do not understand why they just don't give a little bit more love to their disc by mail customers and harvest that revenue stream for as long as they can.

Lee Stewart
04-24-2012, 05:31 PM
Their disc by mail infrastructure is already built and bought and paid for.

Its obviously still operating at a profit.

No reason to kill it off why its still making money.

What gave you the impression they were "killing it off?"

What does it take to maintain that D-b-M infrastructure . . . vs a streaming infrastructure?

PSound
04-24-2012, 06:14 PM
You first example is a Fixed cost not a Variable cost. Their fixed cost is $5 per ticket. If they sell 1 ticket or 1000 tickets, their cost never changes. That is the definition of FIXED COST. Not the outcome of how many tickets are sold.

To make it a Variable cost it would be like this:

1 to 100 tickets sold, cost = $5
101 to 500 tickets sold, cost = $4
501 to 1000 tickets sold, cost = $3

cost



http://dictionary.reference.com/browse/cost?s=t

Once again, you are demonstrating that you simply do not understand the concepts being discussed.


Unit cost (where production or acquisition of one unit) is always going to be a variable cost model. New items must be acquired or manufactured to generate revenue (that is the definition of variable cost).


The concepts being discussed are a matter of revenue vs cost.


The reason your examples continually fail is that you cannot comprehend the need to include both revenue and cost in order to even begin the discussion.

You simply do not comprehend even the most basic premise of fixed cost vs variable cost, and how the core difference is whether costs rise with revenue within the reporting period. Variable cost is called "variable" because the costs of revenues rise (usually linearly) within the reporting period. For example, Apple cannot recognize revenue from selling an iPad without also incurring a cost FOR EACH AND EVERY ONE SOLD. Their costs are VARIABLE based directly on the number/volume of iPads sold.

Netflix streaming can sign as many subs as it can in a reporting period, and the content costs do not directly shift in the quarter based on those costs. Costs may increase in the future due to providers wanting more money for a different baseline of subs, but that occurs outside of the revenue generated within a particular reporting period.

And (again), it is well understood by people who get this topic that fixed cost does not mean permanent. It simply means that revenue generated within a particular reporting period does not require a direct increase of costs within that period (as selling an iPad would require recognition of COGS within that reporting period).

PSound
04-24-2012, 06:17 PM
Beyond me as well. Sure, streaming is the future but they should be milking and nurturing the DVD side because that's where most of their profit is coming from. Why or how much longer is not nearly as important as the fact that it is much more profitable RIGHT NOW.

Money should be doing the talking here but instead it's the BS.

I think you have it dead wrong.

Netflix is milking and nurturing the DVD side. Just take a look at the drop in DVD margin in Q1. They are obviously investing in that business.

The problem is not Netflix wanting to make money from the business. The issue is that consumers are moving on from OD. You can see it in absolutely every metric. Both consumer sell through and rental revenue are declining. Netflix is wisely using this time of decline to build other growing markets. It is called good business.

Kosty
04-24-2012, 06:40 PM
April 24, 2012
The New Yorker

IS NETFLIX DOOMED?


Posted by Nicholas Thompson


http://www.newyorker.com/online/blogs/culture/netflix.jpg

For a while, Netflix seemed like the smartest tech company around. Searching for movies online was easy; mailing them back off-line was cathartic. The company constantly tweaked its red envelopes, trying to create one that you could open while tipsy and seal one-handed while late for work. Customers were treated with respect. If you sent two discs back in the same envelope, Netflix didn’t care. Employees were treated like adults. Anyone could take vacation whenever he or she wanted. The company’s attention to detail was brilliant: the company charged everyone the same monthly fee, but subscribers who watched movies obsessively had new films sent a little more slowly.

Netflix also created a pretty darn good algorithm for figuring out what movies we’d like: what titles would make us happier and less likely to switch to a competitor. When innovation on the algorithm stalled, the company created the Netflix Prize and offered a million dollars to the first team of mathematicians who could improve the recommendation engine by ten per cent. Three years later, they had a winner. Netflix was the master of all the buzzwords of the old world (customer service; supply-chain management) and all the buzzwords of the new world (crowdsourcing, the long tail), too.

More importantly, Netflix made the big decisions right. When Walmart and Blockbuster started to challenge Netflix, it lowered its prices and beat them. After extensive work, the company designed a small box that would allow you to stream movies to your TV. But then Netflix decided that selling the box would put it in the hardware business—which it didn’t want to be in—and would also force it to compete against its partners. So it spun the project off into a company called Roku. Instead, Netflix would let every hardware maker install Netflix software. Soon you could stream movies on your PlayStation, Xbox, TiVo, or just about anything else.

Now, however, Netflix looks screwed. This summer, for the first time, it wildly misread its users. It raised prices on its subscriptions, infuriating people, and then tried to separate its DVD-by-mail business into a new company called Qwikster, infuriating its customers even more. How can a company have so much data that it knows what movies people want to watch next, but not how much they want to pay? “I messed up. I owe everyone an apology,” wrote Reed Hastings on his blog.

For a brief moment, the waters calmed. But yesterday, in its earning call, Netflix announced that the past quarter was grim and that future subscriber growth will be much lower than anticipated. The stock is down fourteen per cent today and seventy per cent since the summer. In August, a share of Netflix cost sixty dollars less than a share of Apple. Now it costs four hundred and sixty dollars less.

It’s a bad time, too, for Netflix to have declining subscriber loyalty. The company believes that the mail-order-DVD business is finished, and that our DVD players are following our VCRs to the junkyard. So it is killing off that part of its business. Unfortunately, though, that’s the part with the high barriers to entry. It’s not easy for a startup to build massive warehouses and systems for mailing discs. It is easy, however, to get into the streaming business. Yesterday, for example, we learned of a startup called NimbleTV, which plans to let you watch all the channels you subscribe to through your cable provider on your phone or your tablet. If you had that, would you want Netflix, too?

Netflix fears that just distributing digital content is a mug’s game. Anyone can move bits around, which means that the price for doing so will just keep dropping. So it’s trying to create its own original content. But, so far at least, it’s not very good at doing so. “Lilyhammer,” a mobster show that Netflix introduced in January, has gotten killed by reviewers; I gave up on the first episode after fifteen minutes of mediocre acting and clumsy dialogue. Early next year, Netflix will release a new season of “Arrested Development,” which will surely be better. But the company is in an odd spot, facing the same competition problem it avoided when it spun off Roku. If its shows are bad, it’s embarrassing. If they’re good, they could irritate partners. Netflix needs content from AMC, for example. But will those negotiations get harder once Netflix is creating its own shows to compete with “Breaking Bad” and “Mad Men”?

Can Netflix pull through, or will it just continue to decline until it, and all its data, gets gobbled by Amazon? Out of a sense of loyalty to red envelopes—and to elegant algorithms—I hope the company figures out how to thrive again. But it won’t be easy for Netflix to find a way to fend off its new competitors while keeping its old partners happy. Perhaps Reed Hastings should offer another million-dollar prize … to someone who can figure out a new business model.




http://www.newyorker.com/online/blogs/culture/2012/04/is-netflix-doomed.html#ixzz1t0YUPv9o

bruceames
04-24-2012, 07:00 PM
I think you have it dead wrong.

Netflix is milking and nurturing the DVD side. Just take a look at the drop in DVD margin in Q1. They are obviously investing in that business.

The problem is not Netflix wanting to make money from the business. The issue is that consumers are moving on from OD. You can see it in absolutely every metric. Both consumer sell through and rental revenue are declining. Netflix is wisely using this time of decline to build other growing markets. It is called good business.

Lack of marketing, intent to rename it "Quikster", removal of DVD queues in streaming menus, making it impossible to sign up for DVD service only (which they later changed), calling themselves a streaming company to the exclusion of DVD, not maintaining inventory levels, etc.

All the signs that they are treating DVD like an ugly stepchild are plain as day. Whether you choose to acknowledge those signs are up to you.

PSound
04-24-2012, 07:01 PM
Lack of marketing, intent to rename it "Quikster", removal of DVD queues in streaming menus, making it impossible to sign up for DVD service only (which they later changed), calling themselves a streaming company to the exclusion of DVD, not maintaining inventory levels, etc.

All the signs that they are treating DVD like an ugly stepchild are plain as day. Whether you choose to acknowledge those signs are up to you.

Correct me if I am wrong, but didn't you assert that they made positive changes to the DVD program that would result in improvement in Q1?

bruceames
04-24-2012, 07:09 PM
Correct me if I am wrong, but didn't you assert that they made positive changes to the DVD program that would result in improvement in Q1?


I don't see how I could have made such a statement. Netflix is making no effort whatsoever to improve the DVD program. Nevertheless, the margins are high, but likely that's partly due to them investing minimal money back into the program.

PSound
04-24-2012, 07:09 PM
I am going to point out again that OD rental is in decline.

It was in decline at this time last year (although that was masked by DEG reporting).


If disc by mail was a growth engine, we would have seen Blockbuster-by-mail posting significant growth. They even include BD for no extra charge!


That market is in decline. And no matter how much money you throw at it, it will continue to decline.

It would be like Blu-ray weakness on the studios for not doing enough to promote it. No amount of promotion is going to get it out of its current declining cycle.

bruceames
04-24-2012, 07:14 PM
Just take a look at the drop in DVD margin in Q1. They are obviously investing in that business.


How much could they have possibly invested. Doing the math, they only spent $5.73 per month per sub. Mailing one disc back and forth plus overhead and distribution has to be at least $1.25 or so. That's only 4 discs rented per sub assuming that practically nothing was spent and stocking discs.

PSound
04-24-2012, 07:16 PM
I don't see how I could have made such a statement. Netflix is making no effort whatsoever to improve the DVD program. Nevertheless, the margins are high, but likely that's partly due to them investing minimal money back into the program.

First off, margins declined signifying they did invest back in the business.

And I'm guessing facilitating DVD-only sign ups will make a difference.

Streaming subs up less, disc subs down less.


http://www.highdefforum.com/1239897-post11.html

PSound
04-24-2012, 07:25 PM
I think it is pretty obvious that disc by mail was artificially inflated by streaming.

It will move down fairly rapidly to the correct level and then show slow negative growth. It is a good offering that consumers like.

It just isn't a growth market.

Lee Stewart
04-24-2012, 07:26 PM
Once again, you are demonstrating that you simply do not understand the concepts being discussed.

That is YOUR opion and a flawed one . . in MY opinion.

Unit cost (where production or acquisition of one unit) is always going to be a variable cost model. New items must be acquired or manufactured to generate revenue (that is the definition of variable cost).

No it isn't. Where do you come up with this crap? Cripes! You are making up your own definitions!

The concepts being discussed are a matter of revenue vs cost.

Which determines profit or loss. It's very simple - unfortunately YOU are making it complicated with all your nonsense.

The reason your examples continually fail is that you cannot comprehend the need to include both revenue and cost in order to even begin the discussion.

You simply do not comprehend even the most basic premise of fixed cost vs variable cost, and how the core difference is whether costs rise with revenue within the reporting period. Variable cost is called "variable" because the costs of revenues rise (usually linearly) within the reporting period. For example, Apple cannot recognize revenue from selling an iPad without also incurring a cost FOR EACH AND EVERY ONE SOLD. Their costs are VARIABLE based directly on the number/volume of iPads sold.

Unbelievable! What a load of BS! I have given you definitions from the Business Dictionary on all the terms you are using and those definitions DO NOT match your use of the words.

Cripes! There is no such thing as "costs of revenue!" :banghead:

You have "costs" . . . a debit entry (an expense) . . . . you have revenue (income) . . . a credit entry. This is basic Accounting 101! Didn't you learn that when you went to High School?

Netflix streaming can sign as many subs as it can in a reporting period, and the content costs do not directly shift in the quarter based on those costs. Costs may increase in the future due to providers wanting more money for a different baseline of subs, but that occurs outside of the revenue generated within a particular reporting period.

And once again, you forget that during that reporting period, new content may go on line and payment is required by the new content provider in that reporting period. Or older contracts expire and are not renewed and payment stops ala the Starz deal which happened in the middle of the Q1/12 reporting period.

And (again), it is well understood by people who get this topic that fixed cost does not mean permanent. It simply means that revenue generated within a particular reporting period does not require a direct increase of costs within that period (as selling an iPad would require recognition of COGS within that reporting period).

But that's just it. By definition, Fixed Costs mean "permanent" (for a long time - years) such as equipment or building depreciation, long term maintenance contracts, interest payments etc. A three year deal with Epix - THAT is a Fixed Cost - for three years.

You really have to comprehend that costs and revenue are two seperate items PSound. Just substitue expenses for costs and income for revenue. Maybe that will help you understand that there is no such thing as . . . expenses of income

Kosty
04-24-2012, 07:29 PM
CNN Money Video

Blood in the water at Netflix

Kosty
04-24-2012, 07:30 PM
I think it is pretty obvious that disc by mail was artificially inflated by streaming.

It will move down fairly rapidly to the correct level and then show slow negative growth. It is a good offering that consumers like.

It just isn't a growth market.

If that is the case then that makes the streaming revenue growth per subscriber even less impressive.

chipvideo
04-24-2012, 08:13 PM
I think you have it dead wrong.

Netflix is milking and nurturing the DVD side. Just take a look at the drop in DVD margin in Q1. They are obviously investing in that business.

The problem is not Netflix wanting to make money from the business. The issue is that consumers are moving on from OD. You can see it in absolutely every metric. Both consumer sell through and rental revenue are declining. Netflix is wisely using this time of decline to build other growing markets. It is called good business.

I agree with you 110% on this statement. This is exactly what is going on.

bruceames
04-24-2012, 08:55 PM
Yes, but consumers are not moving away from OD nearly as rapidly as they are from Netflix disc by mail. And given how much more profitable disc by mail is than streaming, that is NOT good business. They should nurture and promote disc and they always have, and let the decline occur naturally, by consumer choice, rather than accelerating it themselves even further through neglect and indifference.

HD Goofnut
04-24-2012, 09:19 PM
yes, but consumers are not moving away from od nearly as rapidly as they are from netflix disc by mail. And given how much more profitable disc by mail is than streaming, that is not good business. They should nurture and promote disc and they always have, and let the decline occur naturally, by consumer choice, rather than accelerating it themselves even further through neglect and indifference.

+1.

Lee Stewart
04-24-2012, 09:25 PM
Yes, but consumers are not moving away from OD nearly as rapidly as they are from Netflix disc by mail. And given how much more profitable disc by mail is than streaming, that is NOT good business. They should nurture and promote disc and they always have, and let the decline occur naturally, by consumer choice, rather than accelerating it themselves even further through neglect and indifference.

What consumers are doing is going to their local Redbox kiosk to get their OD rentals.

PSound
04-24-2012, 09:35 PM
Yes, but consumers are not moving away from OD nearly as rapidly as they are from Netflix disc by mail. And given how much more profitable disc by mail is than streaming, that is NOT good business. They should nurture and promote disc and they always have, and let the decline occur naturally, by consumer choice, rather than accelerating it themselves even further through neglect and indifference.

And it they are not moving away from disc by mail as quick as they are leaving B&M.

And B&M was highly profitable for a long time. How much should B&M stores invest to stop the bleed?


You are making the classic mistake of missing the cause. Netflix disc by mail margins decline due to more investment in the business. Even then, the top line declined. Good money chasing bad. The consumer is driving the change here.

PSound
04-24-2012, 09:42 PM
There is no such thing as "costs of revenue!"

Lee,

I don't want to be cruel or mean. But you obviously do not understand even basic business economics if you are stating there is no such thing as "cost of revenue". You cannot even create an income statement without referring to cost of revenue.

But it explains why you cannot begin to comprehend the difference between fixed costs and variable costs, as that is a function of cost of revenue.


The sad part (IMO) is that I am sure part of the block is simply not wanting to be educated by me. I understand that. What I don't understand is why no one else steps in and explains the simple concept of "cost of revenue" to assist you.


Either way, I am done. You truly believe that there is no such thing as cost of revenue. That tells me you don't have enough rudimentary knowledge for me to continue this discussion.

I truly wish you the best and hope you find a source to educate yourself so you can participate in these discussions.

Lee Stewart
04-24-2012, 10:34 PM
Lee,

I don't want to be cruel or mean. But you obviously do not understand even basic business economics if you are stating there is no such thing as "cost of revenue". You cannot even create an income statement without referring to cost of revenue.

But it explains why you cannot begin to comprehend the difference between fixed costs and variable costs, as that is a function of cost of revenue.


The sad part (IMO) is that I am sure part of the block is simply not wanting to be educated by me. I understand that. What I don't understand is why no one else steps in and explains the simple concept of "cost of revenue" to assist you.


Either way, I am done. You truly believe that there is no such thing as cost of revenue. That tells me you don't have enough rudimentary knowledge for me to continue this discussion.

I truly wish you the best and hope you find a source to educate yourself so you can participate in these discussions.

PSound - when I entered "cost of revenue" into Business Dictionary you know showed up? NOTHING!

http://www.businessdictionary.com/search-terms.php?q=cost+of+revenue

The closest phrase is Opportunity Cost of Revenue which is:

Income produced to purchase more assets to yield a high rate of return.

That is not the same as what you are trying to define.

So please - don't tell me; "I do not understand even basic business economics." At least I know what proper accounting/economic/finance terms to use instead of making up my own like you do.

PSound
04-24-2012, 10:42 PM
PSound - when I entered "cost of revenue" into Business Dictionary you know showed up? NOTHING!

That explains a lot.

If the breadth of your understanding of business accounting is based on your latest search results, you are going to have problems with larger concepts.

Lee Stewart
04-24-2012, 10:47 PM
That explains a lot.

If the breadth of your understanding of business accounting is based on your latest search results, you are going to have problems with larger concepts.

Well - just give me the URL to. . . PSound's Business & Economic Terms :lol:

Maybe if you tried using accepted business terminology instead of making up your own, we wouldn't be having these arguments. :banghead:

And BTW, you STILL don't understand the difference between fixed and variable costs as they relate to Netflix. You have already proven that.

Kosty
04-24-2012, 10:49 PM
Yes, but consumers are not moving away from OD nearly as rapidly as they are from Netflix disc by mail. And given how much more profitable disc by mail is than streaming, that is NOT good business. They should nurture and promote disc and they always have, and let the decline occur naturally, by consumer choice, rather than accelerating it themselves even further through neglect and indifference.

Consumers are also not moving away from DVD and Blu-ray daily rentals from Redbox kiosks. That business is expanding.

Its hardly a stretch to think that if Netflix had handled disc by mail customers differently in the past few years they would not have had as much attrition in DVD by mail subscribers as they have seen in the recent past.

Kosty
04-24-2012, 10:52 PM
And it they are not moving away from disc by mail as quick as they are leaving B&M.

And B&M was highly profitable for a long time. How much should B&M stores invest to stop the bleed?


You are making the classic mistake of missing the cause. Netflix disc by mail margins decline due to more investment in the business. Even then, the top line declined. Good money chasing bad. The consumer is driving the change here.

Netflix unlimited disc by mail subscriptions and convenient Redbox kiosk rentals are superior alternatives to brick and mortar video stores for many consumers. Streaming is preferable in many ways as well but the probably missteps and seeming mistreatment of Netflix's DVD by mail customers has accelerated the decline.

Lee Stewart
04-24-2012, 10:54 PM
Consumers are also not moving away from DVD and Blu-ray daily rentals from Redbox kiosks. That business is expanding.

Its hardly a stretch to think that if Netflix had handled disc by mail customers differently in the past few years they would not have had as much attrition in DVD by mail subscribers as they have seen in the recent past.

That remains to be see. Very difficult to compete with Redbox. Too many consumer benefits over Netflix D-b-M. Of course the biggest topper - no 58 day wait on new WB titles

PSound
04-24-2012, 10:56 PM
For fun, go check the SEC 10-Q filings and look for ones WITHOUT "cost of sales","cost of good" or "cost of revenue" (or something similar) as a line item:

http://www.sec.gov/cgi-bin/browse-edgar?action=getcurrent


And then tell me when you understand that concept.

Lee Stewart
04-24-2012, 10:57 PM
For fun, go check the SEC 10-Q filings and look for ones WITHOUT cost of sales or cost of revenue as a line item:

http://www.sec.gov/cgi-bin/browse-edgar?action=getcurrent

How about a specific link so I can see what you are referring to

PSound
04-24-2012, 11:00 PM
Well - just give me the URL to. . . PSound's Business & Economic Terms :lol:

Maybe if you tried using accepted business terminology instead of making up your own, we wouldn't be having these arguments. :banghead:

And BTW, you STILL don't understand the difference between fixed and variable costs as they relate to Netflix. You have already proven that.

That's the thing. I don't pretend to have knowledge based on a Google search. I actually know and understand these concepts. You simply do not understand advanced economic and business concepts because you can only assert based on your latest search result.

Lee Stewart
04-24-2012, 11:02 PM
Accounting Dictionary - COST OF REVENUE

COST OF REVENUE see COST OF GOODS SOLD

http://www.ventureline.com/accounting-glossary/c/cost-of-revenue-definition/

COST OF GOODS SOLD

COST OF GOODS SOLD (COGS) is a figure representing the cost of buying raw material and producing finished goods. Included are precise factors, i.e. material and factory labor; as well as others that are variable, such as factory overhead.

http://www.ventureline.com/accounting-glossary/c/cost-of-goods-sold-definition/

PSound
04-24-2012, 11:03 PM
How about a specific link so I can see what you are referring to

Your inability to expand your knowledge beyond the latest search results is not my problem.

Enter 10-Q as the form type there and take a look at those financial documents. They will all list "cost of revenue", or "cost of sales" or "cost of goods" or something similar.

Those that have demonstrable knowledge understand the concept. Those that don't will ask for a link.


I truly get it now. You are asserting knowledge based on your Google-fu. It is handy at times, but it is a limiting factor if you are not able to see and concede its limits and take knowledge from informed sources.

Lee Stewart
04-24-2012, 11:09 PM
That's the thing. I don't pretend to have knowledge based on a Google search. I actually know and understand these concepts. You simply do not understand advanced economic and business concepts because you can only assert based on your latest search result.

Really? So you are saying that my degree from Babson College - Major in Management, Minor in Finance is worthless?

Or the fact that I owned 3 business's and met with my accountant once a week for 15 years - that's worthless too?

Or that I worked with Chief Financial Officers in Fortune 1000 companies for 20 years - that's worthless too?

How can you possibly understand "these concepts" when you can't even use the proper terminology to describe them? You resort to making up your own and then . . . you defend your made up definitions and tell ME I don't understand. :rolleyes:

PSound
04-24-2012, 11:10 PM
Accounting Dictionary - COST OF REVENUE

COST OF REVENUE see COST OF GOODS SOLD

http://www.ventureline.com/accounting-glossary/c/cost-of-revenue-definition/

COST OF GOODS SOLD

COST OF GOODS SOLD (COGS) is a figure representing the cost of buying raw material and producing finished goods. Included are precise factors, i.e. material and factory labor; as well as others that are variable, such as factory overhead.

http://www.ventureline.com/accounting-glossary/c/cost-of-goods-sold-definition/

Again, you simply don't understand the concepts.

A few posts ago you were mocking me stating that "Costs of revenue" did not exist or was a made up term.


Google is a great tool. But it is pointless if you do not take the time to actually grok the information that is presented.

Perhaps you can now take a step back and realize you are making a mistake when you accuse me of making up terms simply based on your initial search results.

If you don't have a deep understanding of a concept, ask for help to understand it. It is fair for you to ask for supporting documentation for something you are learning and wish to understand.

It is a mistake to call someone else wrong when you don't have strong knowledge of the topic of discussion, and are simply basing your assertion based on your latest Google results.

Lee Stewart
04-24-2012, 11:12 PM
Your inability to expand your knowledge beyond the latest search results is not my problem.

Enter 10-Q as the form type there and take a look at those financial documents. They will all list "cost of revenue", or "cost of sales" or "cost of goods" or something similar.

Those that have demonstrable knowledge understand the concept. Those that don't will ask for a link.


I truly get it now. You are asserting knowledge based on your Google-fu. It is handy at times, but it is a limiting factor if you are not able to see and concede its limits and take knowledge from informed sources.

Here you go - link to Ryder 10-Q

http://www.sec.gov/Archives/edgar/data/85961/000144530512001152/ryder10-q.htm

Now please tell me EXACTLY where it says "cost of revenue"

PSound
04-24-2012, 11:14 PM
Really? So you are saying that my degree from Babson College - Major in Management, Minor in Finance is worthless?

Or the fact that I owned 3 business's and met with my accountant once a week for 15 years - that's worthless too?

Or that I worked with Chief Financial Officers in Fortune 1000 companies for 20 years - that's worthless too?

How can you possibly understand "these concepts" when you can't even use the proper terminology to describe them? You resort to making up your own and then . . . you defend your made up definitions and tell ME I don't understand. :rolleyes:

You stated that "cost of revenues" was a made up term.

Now (based on your most recent Google results), you know see how blatantly you were wrong about that assertion.


I really don't know or care about your background. What I do know is that you obviously do not understand the concept of Cost of Revenue, Cost of Goods, Cost of Sales, etc.

That is what I do care about. Perhaps you can consult your accountants (if you trust them), gain some knowledge on the topic and then re-engage on the discussion once you have a baseline of rudimentary knowledge on cost of revenue.

Once you understand that simple concept, you will be able to move on to the next step of fixed vs variable cost model.

PSound
04-24-2012, 11:16 PM
Here you go - link to Ryder 10-Q

http://www.sec.gov/Archives/edgar/data/85961/000144530512001152/ryder10-q.htm

Now please tell me EXACTLY where it says "cost of revenue"

As I stated:

They will all list "cost of revenue", or "cost of sales" or "cost of goods" or something similar.

And it does. It lists several costs, but the most relevant would be "cost of services" which is equivalent t "cost of goods" for a services company.


Lee: You really need to educate yourself. I don't understand why you would assert ignorance. Surely you also saw the other 10-Qs that also listed "Cost of revenue", "cost of sales", etc.

PSound
04-24-2012, 11:20 PM
Here you go - link to Ryder 10-Q

http://www.sec.gov/Archives/edgar/data/85961/000144530512001152/ryder10-q.htm

Now please tell me EXACTLY where it says "cost of revenue"

BTW... just for information for everyone else.

The Ryder report was the third in the list.


The first 10-Q listed "cost of sales". The second 10-Q listed "cost of revenues".

Again proving that Lee's assertion that "cost of revenues" was made up or didn't exist was blatantly wrong. Saying that something does not exist when it can be found in just about every 10-Q report to the SEC in existence is the definition of ignorance on a topic.

Lee Stewart
04-24-2012, 11:21 PM
Again, you simply don't understand the concepts.

A few posts ago you were mocking me stating that "Costs of revenue" did not exist or was a made up term.

It is a made up term! It is not in the Business Dictionary . . . it is not in the Accounting Dictionary. I have already proved that.

Google is a great tool. But it is pointless if you do not take the time to actually grok the information that is presented.

Perhaps you can now take a step back and realize you are making a mistake when you accuse me of making up terms simply based on your initial search results.

If you don't have a deep understanding of a concept, ask for help to understand it. It is fair for you to ask for supporting documentation for something you are learning and wish to understand.

It is a mistake to call someone else wrong when you don't have strong knowledge of the topic of discussion, and are simply basing your assertion based on your latest Google results.

Here is the problem PSound - YOU should be using Google to locate the proper terms to define the information you are trying to present. If you want to talk Business/Economics/Finance - at least use the proper terminology. They are right there at your fingertips.

Your biggest problem is you refuse to believe you are wrong. You already proved that with your ignorance of the difference of Fixed Costs and Variable Costs.

PSound
04-24-2012, 11:23 PM
Anyway, I have proven my point.

Just because Lee could not use Google to find "Cost of Revenues" in his search results does not mean it is not a valid and oft used business and financial reporting term. It is listed exactly that way in many 10-Q reports, and in a different name in pretty much all 10-Q reports as you simply cannot make an income statement without also listing the costs of sales/revenue.

PSound
04-24-2012, 11:24 PM
It is a made up term! It is not in the Business Dictionary . . . it is not in the Accounting Dictionary. I have already proved that.

Maybe you should file a complaint with the SEC for every company that lists "cost of revenue" in their 10-Q since it is a made up term! :haha:

1stSilverado
04-24-2012, 11:26 PM
Consumers are also not moving away from DVD and Blu-ray daily rentals from Redbox kiosks. That business is expanding.

Its hardly a stretch to think that if Netflix had handled disc by mail customers differently in the past few years they would not have had as much attrition in DVD by mail subscribers as they have seen in the recent past.

I cannot discuss Netflix OD by mail or Redbox as I have not and cannot use these services. My understanding is from the concept of streaming going international and disc rental not moving at all.
If Redbox is growing, is that substantial growth, or just a few more kiosks in a Walmart?
I use the streaming service frequently and would probably use the disc rental service if it was available in my country.
Is that what you are referring to Kosty, if disc rental went international like streaming did?

Lee Stewart
04-24-2012, 11:31 PM
BTW... just for information for everyone else.

The Ryder report was the third in the list.


The first 10-Q listed "cost of sales". The second 10-Q listed "cost of revenues".

Again proving that Lee's assertion that "cost of revenues" was made up or didn't exist was blatantly wrong. Saying that something does not exist when it can be found in just about every 10-Q report to the SEC in existence is the definition of ignorance on a topic.

1. I picked Ryder because I had done business with them. I did not even look at the first two.

2. "Cost of sales" does not equal "cost of revenues." A company can generate revenue for itself without selling anything.

3. It says "cost of revenues" and not "costs of revenue" as you stated - and yes - that "s" does mean something when you place in the proper location - which YOU didn't:

Originally Posted by PSound
Again, you simply don't understand the concepts.

A few posts ago you were mocking me stating that "Costs of revenue" did not exist or was a made up term.

Sorry to upset you PSound - you failed again. :haha:

Kosty
04-24-2012, 11:43 PM
I cannot discuss Netflix OD by mail or Redbox as I have not and cannot use these services. My understanding is from the concept of streaming going international and disc rental not moving at all.
If Redbox is growing, is that substantial growth, or just a few more kiosks in a Walmart?
I use the streaming service frequently and would probably use the disc rental service if it was available in my country.
Is that what you are referring to Kosty, if disc rental went international like streaming did?

Well I was referring to the domestic to USA increase in the physical disc rental business for Redbox kiosks which is expanding as a counterpoint tot the disc by mail declines that Netflix has seen,

Its kinda obvious that Netflix has had a pretty aggressive stance in favoring streaming over disc rental and almost openly had customers choice one or the other last summer when they spilt off the plans and did not continue to offer streaming free to disc rental customers.

For myself, I have enjoyed the improvements in Netflix streaming over time and I dropped my physical disc by mail (Blu-ray plan) last summer as I found I enjoyed Netflix streaming for old TV shows and documentaries and it was as good as DVD quality for things not available on Blu-ray. I also found I could find newer release Blu-ray easier and cheaper at Redbox kiosks around town or buy them on sale for prices that made permanent ownership attractive.

As Netflix stopped carrying new to Blu-ray catalog titles more and more and had latter and latter arrival times for newer releases, obviously because they were buying less Blu-ray recently released inventory they just lost me as a paying disc by mail customer, but they could have easily retained me as a both streaming and Blu-ray by mail customer if they seemed to care more about the physical side of the business.

Redbox gained me as a customer with their price and service like their web search and reservation of local kiosks. With that I always get a new release I want with a day or so for $1.50 a pop. Its just superior to Netflix disc by mail in availability and timeliness.

I am just fine with Netflix streaming for older movies and TV shows. That's what they do best.

chipvideo
04-24-2012, 11:46 PM
All you guys and girl are missing the entire point. They are not just simply moving from one rental service to the next. Its even more simple than that.

They are watching and renting and purchasing less OD as a whole. We as a society are speinding more time on message boards like this rather than watching an OD. Its really that simple. I stand by this as I have for the last half decade. Consumers time is being spent elsewhere. The internet is growing and becoming a necissity in every day life.

1stSilverado
04-25-2012, 02:02 AM
All you guys and girl are missing the entire point. They are not just simply moving from one rental service to the next. Its even more simple than that.

They are watching and renting and purchasing less OD as a whole. We as a society are speinding more time on message boards like this rather than watching an OD. Its really that simple. I stand by this as I have for the last half decade. Consumers time is being spent elsewhere. The internet is growing and becoming a necissity in every day life.

I agree.
I wanted to clarify if Redbox growth is comparable to Netflix loss of subs when it comes to OD. Kosty made reference to this and since neither option for OD rental exists where I live, I was curious.
Show me a kid who has not got their head buried in their smartphone texting or on the new app, and I will show you a kid who forgot to charge their phone :D

Lee Stewart
04-25-2012, 02:14 AM
I agree.
I wanted to clarify if Redbox growth is comparable to Netflix loss of subs when it comes to OD. Kosty made reference to this and since neither option for OD rental exists where I live, I was curious.
Show me a kid who has not got their head buried in their smartphone texting or on the new app, and I will show you a kid who forgot to charge their phone :D

Coinstar Raises Financial Forecast As Redbox DVD Rentals Beat Expectations

Thursday April 12, 2012

Coinstar shares are up more than 13% in after-hours trading after the owner of Redbox said that the kiosk rental business continues to thrive after the October price increase for a DVD to $1.20 a night from $1. As a result it says that Q1 revenues could exceed $569M vs the maximum of $555M it projected in February. And earnings per share now are expected to go as high as $1.66, up from the earlier forecast that topped out at 91 cents. For all of 2012, the company now forecasts that revenue could reach $2.28B vs the earlier prediction of $2.25B.

http://www.deadline.com/2012/04/coinstar-raises-financial-forecast-as-redbox-dvd-rentals-beat-expectations/

February 06, 2012

LOS ANGELES (MarketWatch) -- Coinstar Inc. (US:cstr) late Monday reported fourth-quarter earnings from continuing operations of $31.5 million, or $1 a share, compared with $11.7 million, or 68 cents a share, a year ago. Revenue rose to $520.5 million from $390.8 million from the same period a year ago.

http://articles.marketwatch.com/2012-02-06/markets/31040834_1_redbox-dvd-kiosks-share

Just using the data above and the OP:

Q4/2011 Revenue: $520.5 million

Q1/2012 Revenue: $569 million

An increase of $48.5 million.

Netflix's DVD Sub revenue decreased $50M in Q1/2012 (see post #15)

You could easily conclude that Netflix's loss was Redbox's gain when it came to DVD rental revenue.

Dave J
04-25-2012, 03:38 AM
You could easily conclude that Netflix's loss was Redbox's gain when it came to DVD rental revenue.

And as Lee pointed out earlier in this thread that lost revenue in Q1 was nearly all profit.

PSound
04-25-2012, 07:03 AM
Cripes! There is no such thing as "costs of revenue!" :banghead:

You have "costs" . . . a debit entry (an expense) . . . . you have revenue (income) . . . a credit entry. This is basic Accounting 101! Didn't you learn that when you went to High School?


Again, you simply do not know what you are talking about.

You did not even understand the simple concept around COGS, cost of sales, cost of revenues, etc. Heck, you didn't even know they existed despite it being a core requirement of an income statement (in one name or another) because you did not have enough basic knowledge to even know what to Google.


You are trying to assert knowledge based purely on the results of your latest Google search. It is pointless to engage you on this topic because you are uninformed, and incapable of admitting such.

PSound
04-25-2012, 07:06 AM
All you guys and girl are missing the entire point. They are not just simply moving from one rental service to the next. Its even more simple than that.

They are watching and renting and purchasing less OD as a whole. We as a society are speinding more time on message boards like this rather than watching an OD. Its really that simple. I stand by this as I have for the last half decade. Consumers time is being spent elsewhere. The internet is growing and becoming a necissity in every day life.

OD rental is rapidly shifting to the lowest cost, lowest margin model. Consumers do not want to spend money on OD rental at the same level as before. That is why the entire revenue stream for OD rental is shrinking.


The shift of dollars from OD by mail to kiosks is simply an artifact of that primary shift by the consumers.

bruceames
04-25-2012, 07:31 AM
And it they are not moving away from disc by mail as quick as they are leaving B&M.

And B&M was highly profitable for a long time. How much should B&M stores invest to stop the bleed?


You are making the classic mistake of missing the cause. Netflix disc by mail margins decline due to more investment in the business. Even then, the top line declined. Good money chasing bad. The consumer is driving the change here.

You can't visit a B&M store if it doesn't exist (within a reasonable driving distance). The consumer has no choice there.

B&M stopped being profitable because they lost enough business and because of price erosion in their rentals. It was a dying model, and much of it had to do with consumers going to Netflix.

Now they are going to Redbox because that's where the new releases are. Netflix either doesn't stock enough, or they are affected by the 30/60 day window. But it goes beyond that in the reasons I stated above.

In Netflix's case, they are helping the consumer along in leaving OD. That's what they want actually. Surely you can see that.

PSound
04-25-2012, 07:42 AM
In Netflix's case, they are helping the consumer along in leaving OD. That's what they want actually. Surely you can see that.

I think they have accepted that the customer is leaving OD and are building/spending accordingly.

If the OD rental market as a whole was growing, it might be different. It isn't.


Even your comment above about not being able to go to a B&M store because it is not there demonstrates this. The OD rental market is retracting. The shifts we are seeing are a symptom of that shift - not the cause.

Certainly as the market contracts, the business reactions that companies must make will continue that spiral. It is what it is.


And take a look at the earnings info again. Netflix spent more on OD by mail (as a function of revenue) in Q1 than in Q4. That did not prevent the decline in subs, nor (based on the number of free subs) do much to spur gross growth.



BTW... I do believe that disc by mail will adjust itself to the right level of interest for OD by mail, and then see a much slower organic decline. We have seen major drop-offs in recent quarters as OD by mail rightsizes its sub numbers after being artificially inflated by bundling with streaming.

I could even see seasonal growth bumps, but the trend of declines will slowly continue.

Lee Stewart
04-25-2012, 07:46 AM
Again, you simply do not know what you are talking about.

You did not even understand the simple concept around COGS, cost of sales, cost of revenues, etc. Heck, you didn't even know they existed despite it being a core requirement of an income statement (in one name or another) because you did not have enough basic knowledge to even know what to Google.


You are trying to assert knowledge based purely on the results of your latest Google search. It is pointless to engage you on this topic because you are uninformed, and incapable of admitting such.

LMFAO! So you finally give in huh? You have corrected your previous mistakenly used term . . . costs of revenue . . . which I quoted AS YOU TYPED IT and now you use . . cost of revenues. And is there a term called . . . cost of revenue? That doesn't appear in any of those 10-Q links but you freely used it in many of your previous posts. I am sure you won't any longer now that you know the proper terminology.

And again, Cost Of Sales does not necessiarily mean the same as Cost of Revenues. As I said, there are companies that have zero dollars in sales but 100's of millions of dollars in revenue. It is dependent on how a company generates it's income as to which applies.

Are you ready to tackle Fixed versus Variable Costs now? Don't think for a moment that all the nonsense you previously posted is correct . . . far from it!

bruceames
04-25-2012, 07:54 AM
I think they have accepted that the customer is leaving OD and are building/spending accordingly.

If the OD rental market as a whole was growing, it might be different. It isn't.


Even your comment above about not being able to go to a B&M store because it is not there demonstrates this. The OD rental market is retracting. The shifts we are seeing are a symptom of that shift - not the cause.

Certainly as the market contracts, the business reactions that companies must make will continue that spiral. It is what it is.


And take a look at the earnings info again. Netflix spent more on OD by mail (as a function of revenue) in Q1 than in Q4. That did not prevent the decline in subs, nor (based on the number of free subs) do much to spur gross growth.



BTW... I do believe that disc by mail will adjust itself to the right level of interest for OD by mail, and then see a much slower organic decline. We have seen major drop-offs in recent quarters as OD by mail rightsizes its sub numbers after being artificially inflated by bundling with streaming.

I could even see seasonal growth bumps, but the trend of declines will slowly continue.

Again, OD rental is not declining nearly as much as Netflix disc by mail is. OD rental declined only 3 percent last year. People are leaving B&M for Redbox for convenience (and more locations), but there's no reason to leave disc by mail for Redbox other than new releases being available which aren't at Netflix because they aren't stocking them.

It's very simple. Netflix is exacerbating the disc by mail decline.

PSound
04-25-2012, 08:07 AM
Again, OD rental is not declining nearly as much as Netflix disc by mail is. OD rental declined only 3 percent last year.

First off, OD rental declined far more than that. We know the reporting is off. Either last year will be adjusted downward, or this year will see a steep drop-off to account for two years worth of decline.

Second - Yes, Netflix OD by mail is declining faster. That is because those sub numbers (and revenue) were artificially inflated by the inclusion of streaming.

OD by mail decline will level off some once the sub number has adjusted back to the levels of actual consumer demand purely for OD by mail starting at $7.99



People are leaving B&M for Redbox for convenience (and more locations), but there's no reason to leave disc by mail for Redbox other than new releases being available which aren't at Netflix because they aren't stocking them.

It's very simple. Netflix is exacerbating the disc by mail decline.

Interesting. No where in there do you think price plays a role in kiosk success. Not even over B&M. I believe kiosk pricing plays a major role in its success, and any discussion competition certainly must highlight price.

bruceames
04-25-2012, 08:31 AM
First off, OD rental declined far more than that. We know the reporting is off. Either last year will be adjusted downward, or this year will see a steep drop-off to account for two years worth of decline.

Second - Yes, Netflix OD by mail is declining faster. That is because those sub numbers (and revenue) were artificially inflated by the inclusion of streaming.

OD by mail decline will level off some once the sub number has adjusted back to the levels of actual consumer demand purely for OD by mail starting at $7.99





Interesting. No where in there do you think price plays a role in kiosk success. Not even over B&M. I believe kiosk pricing plays a major role in its success, and any discussion competition certainly must highlight price.

The DEG report says 3 percent, so that's what we should go on, don't you think? Unless you have some better info...

I don't think price plays a very large role in Redbox's success. Sure, at $2.00 or $2.50 they would get fewer rentals, but a buck is not a deal breaker for most people. Especially for those hot off the press movies that they are anxious to see at home.

Redbox success is because of convenience over B&Ms and the number of locations at places where people routinely go for other reasons. You have to make a special trip to a B&M store.

PSound
04-25-2012, 08:34 AM
The DEG report says 3 percent, so that's what we should go on, don't you think? Unless you have some better info...

The DEG is the best we have, but we know there are going to be some major shifts in H1. Feel free to quote the 3% for now.... but it does not reflect market reality and we both know it.


I don't think price plays much a role in Redbox's success.

Probably a conversation killer right there. I do believe price plays a big role in Redbox success.

bruceames
04-25-2012, 08:47 AM
The DEG is the best we have, but we know there are going to be some major shifts in H1. Feel free to quote the 3% for now.... but it does not reflect market reality and we both know it.

Well apparently you know more than I do. I'm not going to speculate on how far off the DEG may be with their numbers.




Probably a conversation killer right there. I do believe price plays a big role in Redbox success.

Fine. But again, $1 or $2, with prices that low it's not going to make a huge difference. Both are very cheap and attractive. B&M pricing was very cheap as well before they went under. Did it help much? And Netflix is actually cheaper than Redbox if you take advantage of it.

Don't kid yourself. It's because of the combination of convenience and availability of new release titles.

PSound
04-25-2012, 11:14 AM
Well apparently you know more than I do. I'm not going to speculate on how far off the DEG may be with their numbers.

To be clear, I don't think their raw numbers are wrong. But we know that how they allocated last year (lumping together OD subs and streaming subs) is going to cause some major shifts this year - or require them to re-report last years numbers.


Fine. But again, $1 or $2, with prices that low it's not going to make a huge difference. Both are very cheap and attractive. B&M pricing was very cheap as well before they went under. Did it help much? And Netflix is actually cheaper than Redbox if you take advantage of it.

Don't kid yourself. It's because of the combination of convenience and availability of new release titles.

I disagree. B&Ms are much more convenient (IMO) with a wide range of discs. They were buried due to price.

bruceames
04-25-2012, 11:20 AM
I disagree. B&Ms are much more convenient (IMO) with a wide range of discs. They were buried due to price.

Huh? How are B&Ms more convenient when you have to make a separate trip to go there? With a kiosk, you literally have to walk about 2 steps out of your way. And most consumers want the latest releases. Something of which Redbox has.

If price is so critical, then why are customers actually paying on average double what the one day rental price is? ;)

PSound
04-25-2012, 12:05 PM
Huh? How are B&Ms more convenient when you have to make a separate trip to go there? With a kiosk, you literally have to walk about 2 steps out of your way. And most consumers want the latest releases. Something of which Redbox has.

Say what you will about Blockbuster, but you could always walk in and know the latest release was there. Locations could handle more than one customer at a time. Their breadth was far beyond what Redbox could do.

And Redbox is only two steps out of your way if you are already there - to rent or to return. Otherwise it is still a trip.

If price is so critical, then why are customers actually paying on average double what the one day rental price is? ;)

Double is still far cheaper than new release rates at B&Ms.


The really big benefit of kiosks is price. Kiosks have studio enforced delays like Netflix. They have other inherent issues with the simple interface (ability to only serve one customer at a time).

The benefit of kiosks is the efficiencies in space and staff that allow them to set retail pricing so low.

Kosty
04-25-2012, 02:35 PM
Again, you simply do not know what you are talking about.

You did not even understand the simple concept around COGS, cost of sales, cost of revenues, etc. Heck, you didn't even know they existed despite it being a core requirement of an income statement (in one name or another) because you did not have enough basic knowledge to even know what to Google.


You are trying to assert knowledge based purely on the results of your latest Google search. It is pointless to engage you on this topic because you are uninformed, and incapable of admitting such.

I think that is being grossly unfair to Lee Stewart. Over the years he clearly has shown that he understands those concepts.

Just because he is disagreeing with you does not make him stupid or incapable of understanding those issues.

Kosty
04-25-2012, 02:38 PM
You can't visit a B&M store if it doesn't exist (within a reasonable driving distance). The consumer has no choice there.

B&M stopped being profitable because they lost enough business and because of price erosion in their rentals. It was a dying model, and much of it had to do with consumers going to Netflix.

Now they are going to Redbox because that's where the new releases are. Netflix either doesn't stock enough, or they are affected by the 30/60 day window. But it goes beyond that in the reasons I stated above.

In Netflix's case, they are helping the consumer along in leaving OD. That's what they want actually. Surely you can see that.

Exactly.

You can't look at the decline in brick and mortar stores that both Netflix disc by mail and Redbox $1 a night kiosks helped kill off and say that's proof that the Netflix disc by mail program would have declined as fast if it was managed better by Netflix.

To state otherwise just seems to be defending Netflix management and agreeing with them that disc by mail should be replaced as soon as possible by streaming.

Kosty
04-25-2012, 02:49 PM
Again, OD rental is not declining nearly as much as Netflix disc by mail is.

OD rental declined only 3 percent last year. People are leaving B&M for Redbox for convenience (and more locations), but there's no reason to leave disc by mail for Redbox other than new releases being available which aren't at Netflix because they aren't stocking them.

It's very simple. Netflix is exacerbating the disc by mail decline.

I do not see how one can deny that.

It will be interesting to see what the DEG stats say for the 1Q when we get them and how the Netflix disc by mail decline compares to Redbox growth and to the physical rental category as a whole.

As I said before its easy to find disgruntled former Netflix customers sho would have stayed with their disc by mail service if it had a bit more attention or resources given to it in the past few years.

Its been fairly obvious for a while that they had been taking profits from disc by mail and shortchanging the customer service and physical inventory there to plow those profits into building up streaming.

I have stayed as a streaming customer with Netflix but I and many others could have stayed as disc by mail customers too with more profits to Netflix if they had paid more attention to that side of the business.

Kosty
04-25-2012, 03:24 PM
Huh? How are B&Ms more convenient when you have to make a separate trip to go there? With a kiosk, you literally have to walk about 2 steps out of your way. And most consumers want the latest releases. Something of which Redbox has.

If price is so critical, then why are customers actually paying on average double what the one day rental price is? ;)

PSound is completely missing the point that Redbox is so convienient because their kiosks are located at supermarkets drug stores and on their way to almost anay consumer errand. You can throw a disc to return or rent while on your other shopping trips instead of a separate distinct trip to a video store that you rented the item from.

You literally can almost can return it anywhere at multiple locations you were already going. Right by the door, two steps like you said.

The value for Redbox is not only the low price to rent but also the low marginal cost for one more day. Most rentals are over two days on average and its easy enough to say its only another $1.10 or $1.50 to keep it out one more day and I'll return it to Walmart tomorrow when I go out shopping there anyway.

The average return price per event ends up being a lot more than just their single daily rate, but it enables consumers to make that choice willingly, unlike with the old late fees for video stores.

Kosty
04-25-2012, 08:19 PM
Coinstar's Redbox Gaining DVD Business From Netflix

By PATRICK SEITZ, INVESTOR'S BUSINESS DAILY
Posted 01:12 PM ET




Coinstar shares were up 2.6% in midday trading Wednesday near 65.10, marking its second day of gains following Netflix's disappointing first-quarter report.

Coinstar is due to report its Q1 results after the market close Thursday. The Bellevue, Wash.-based company already preannounced better-than-expected results on April 12, thanks to higher sales and profitability from its Redbox unit.

At the midpoint of its guidance, Coinstar expects core earnings per share of $1.38, up 200% from a year earlier, on sales of $568 million, up 34%, for the March quarter.

In Q4 2011, Redbox accounted for 86% of the company's sales. Coinstar's legacy coin-counting business and other ventures contributed the remaining 14% of sales.

Coinstar said its Q1 results reflected better-than-anticipated demand at Redbox, particularly in February and March, and acceptance of its movie rental price increases. Redbox raised the price of DVD rentals from $1 a night to $1.20 a night starting last October.

Redbox also is picking up DVD revenue at the expense of Netflix, which is slowly phasing out that business. Netflix said late Monday that its U.S.-only DVD-by-mail service lost 1.08 million subscribers in the first quarter. It ended Q1 with 10.09 million DVD subscribers and expects to have 9.15 million as of June 30.

Netflix is focusing its attention on providing streaming video service. Coinstar intends to enter the streaming video business later this year in a joint venture with Verizon Communications (VZ).
http://news.investors.com/article/609115/201204251312/coinstar-redbox-gains-from-netflix-dvd-decline.htm

Kosty
04-26-2012, 04:11 PM
Netflix’s ‘Lukewarm’ Latin America Holiday

26 Apr, 2012
By: Erik Gruenwedel


In addition to foreign expansion challenges, Netflix traffic growth in the United States appears to be peaking

Netflix continues to top streaming video traffic during peak viewing times in the United States across wired broadband connections but is experiencing growing pains outside North America, according to a new report, Global Internet Phenomena Report: 1H 2012, from bandwidth management firm Sandvine.

When factoring upstream and downstream traffic during a 24-hour period, Netflix represents 24.4% of peak video traffic, compared with 14.2% for file-sharing service BitTorrent. Netflix comprises 32.9% of peak hour traffic, up 0.2% from the last report in September. That peak streaming traffic is projected to decline to 32.5% in the second half of the year.

Notably, Netflix drives 33% of capacity infrastructure (data) costs — a reality not lost upon cable operators such as Comcast, which recently bowed a proprietary SVOD service that doesn’t impact a subscriber’s monthly data usage cap.


Netflix CEO Reed Hastings, in a recent Facebook post, decried Comcast’s apparent competitive move in violation of federal net neutrality guidelines.

Meanwhile, Netflix’s prowess in the United States and successful launch in Canada hasn’t been replicated thus far in Latin America, Mexico and the Caribbean — a reality company officials acknowledged in April 24 financials. The Los Gatos, Calif.-based streaming service launched operations in the United Kingdom and Ireland in January.

Sandvine said that when measuring bandwidth usage, Netflix’s reception in Latin America has been “lukewarm” at best. The SVOD service accounts for just 0.75% of the region’s streaming traffic on fixed access networks (such as cable and satellite), and 0.73% on mobile.

Notably, the usage levels still rank Netflix the 13th largest source of peak hour traffic on both fixed and mobile access networks.

Unlike in the United States, where there is substantial broadband penetration, relatively large disposable income with credit card usage, myriad Netflix-enabled consumer electronics devices and limited competition, in Latin America the environment could scarcely be more different, according to the report.

“Since few Latin American subscribers have access to the high speeds, consistent quality and large usage allowances available on cable or DSL connections, Netflix faces an uphill battle for the time being,” the report reads.

In Latin America, many countries have limited deployment of fixed access networks, so subscribers often rely on mobile connections as the primary Internet access. Since few subscribers have access to the high speeds, consistent quality and large usage allowances available on cable or DSL connections, Netflix faces a challenge.

In addition, content offerings in Latin America (and other foreign territories) are significantly smaller than in the United States, often lacking marquee titles. Regional content is paramount in Latin America with subtitles (in Spanish and Portuguese) key to consumer adoption. Still, Sandvine said Latin America offers “tantalizing” growth possibilities with a substantial consumer base.

In the United Kingdom and Ireland, network and credit card issues pale in comparison to the reality that Netflix faces competition from Amazon-owned LoveFilm Instant, satellite TV BSkyB’s SkyGo platform and BBC’s iPlayer, among others. Indeed, the iPlayer accounts for 6.4% of peak period streaming traffic. Since launching, Netflix represents 2% of the streaming traffic.

Regardless, Netflix also faces increased domestic competition from YouTube (the second-largest source of peak downstream traffic, at 13.8%), Hulu, HBO Go, Amazon Prime, Comcast Xfinity Streampix, Dish Network's [email protected] and traditional TV networks streaming their content to game consoles and other devices, according to the report.

Additional business challenges from increased content licensing costs have the potential to impact the content catalogue. Those companies that already own vast content libraries (i.e. Comcast’s NBC Universal) and can control or influence licensing will play a particularly interesting role in the developing market of SVOD, the report said.

“All of these services face a tremendous uphill battle to knock Netflix off its perch, and many will have to overcome the same licensing issues as Netflix, so don’t expect Netflix to fall from the top spot anytime soon,” the report reads.



http://www.homemediamagazine.com/netflix/netflix-s-lukewarm-latin-america-holiday-27094

Lee Stewart
04-26-2012, 06:35 PM
http://www.homemediamagazine.com/netflix/netflix-s-lukewarm-latin-america-holiday-27094

According to the International Telecommunications Union (ITU), the average penetration rate of fixed broadband services in Latin America and the Caribbean is below 5 percent. In contrast, Korea has a 36.6 percent penetration rate, while in the United States it is 26 percent.

http://www.iadb.org/en/news/announcements/2011-12-07/greater-broadband-penetration-and-usage,9753.html

Lee Stewart
05-31-2012, 12:33 AM
Sarandos: Netflix Welcomes Extended Disc Embargoes

30 May, 2012
By: Erik Gruenwedel

Chief content officer says Netflix isn’t killing off its disc rental business, but merely reflecting generational changes in media consumption


Studio efforts to maintain and/or lengthen new-release access of movie discs to Netflix are welcomed and encouraged, Ted Sarandos, chief content officer of the subscription video-on-demand service, told an investor group.

Speaking May 30 to the second annual Nomura U.S. Media, Cable & Telecom Summit in New York, Sarandos said that in an effort to secure long-term working relationships with studios, he is embracing ongoing 28-day delays on new releases with some studios and a 56-day delay with Warner Home Video.

“I believe that is good for the overall ecosystem,” Sarandos said, adding that consumers fixated on new releases most likely aren’t Netflix subscribers. “This way we stay out of the path of the first 28 days of [higher margin] VOD transactions or DVD sales. And that is a good thing because it supports the overall creation of content.”

The CCO dismissed notions Netflix is intentionally downsizing its pioneering by-mail disc rental business with streaming. Indeed, physical rentals continue to drive the strongest margins at Netflix, with hybrid streaming/disc rental subs generating the service’s lone operating income this year.

“It’s not to say the DVD business is dead or necessarily on a glide-path to death,” Sarandos said. “While we do think there is a lack of physical rental [options], the growth in click-and-watch options is really what we have our eye on.”

He said there continues to evolve a generational shift among movie renters, with younger viewers opting for streaming, while older viewers prefer disc rentals and sellthrough.

“My teenage kids will probably never buy or rent a physical disc, but we have people like me who still buy a CD at Starbucks,” Sarandos said.

http://www.homemediamagazine.com/netflix/sarandos-netflix-welcomes-extended-disc-embargoes-27378

HD Goofnut
05-31-2012, 07:20 AM
28, 56, it doesn't really matter to me as I will wait and pay $1.40 versus $20 any day. I say let the studios continue to shoot themselves in the foot.

bruceames
05-31-2012, 07:41 AM
Netflix welcomes the embargos because it hurts Redbox and the remaining B&Ms more than it hurts them, and it also encourages OD renters to stream more, which is their end game.

ack_bak
05-31-2012, 01:51 PM
Well Netflix should care more about their lucrative optical business:

http://www.pcworld.com/article/256421/amazon_instant_video_app_lands_on_xbox_360.html

Amazon streaming is now on the Xbox 360 and will be coming to more devices I suspect as Amazon continues to ramp up their service. As a Prime member I am basically gettting it for free and have dumped Netflix streaming and not really looked back since it was mostly the kids that use it. I also like that many Blu-Ray's I purchase offer free instant streaming at Amazon before the disc even ships.

There are also rumors that Netlix may lose Epix (which makes up another huge chunk of their content) in a bidding war with Apple.

If that happens, look for Netflix stock to plummet. I really wish Netflix would put more effort into both the streaming and disc services. I have been giving my money more and more to Redbox.

HD Goofnut
05-31-2012, 02:57 PM
Well Netflix should care more about their lucrative optical business:

http://www.pcworld.com/article/256421/amazon_instant_video_app_lands_on_xbox_360.html

Amazon streaming is now on the Xbox 360 and will be coming to more devices I suspect as Amazon continues to ramp up their service. As a Prime member I am basically gettting it for free and have dumped Netflix streaming and not really looked back since it was mostly the kids that use it. I also like that many Blu-Ray's I purchase offer free instant streaming at Amazon before the disc even ships.

There are also rumors that Netlix may lose Epix (which makes up another huge chunk of their content) in a bidding war with Apple.

If that happens, look for Netflix stock to plummet. I really wish Netflix would put more effort into both the streaming and disc services. I have been giving my money more and more to Redbox.

I have no intention of going back to Netflix streaming either. I do like Amazon's streaming service through Prime, but I have a problem with a lot of their movies being in 1.33:1 and 1.78:1 when their OAR's are wider. It is certainly a nice addition to my Kindle Fire though.

chipvideo
05-31-2012, 05:00 PM
I will never leave netflix. Cheap and convienent.

bruceames
05-31-2012, 05:41 PM
Well Netflix should care more about their lucrative optical business:

http://www.pcworld.com/article/256421/amazon_instant_video_app_lands_on_xbox_360.html

Amazon streaming is now on the Xbox 360 and will be coming to more devices I suspect as Amazon continues to ramp up their service. As a Prime member I am basically gettting it for free and have dumped Netflix streaming and not really looked back since it was mostly the kids that use it. I also like that many Blu-Ray's I purchase offer free instant streaming at Amazon before the disc even ships.

There are also rumors that Netlix may lose Epix (which makes up another huge chunk of their content) in a bidding war with Apple.

If that happens, look for Netflix stock to plummet. I really wish Netflix would put more effort into both the streaming and disc services. I have been giving my money more and more to Redbox.

I agree that Netflix should taking care of the more its cash cow. Biting the hand that's feeding them will end up biting them in the long run I'm afraid. I think they may have unrealistic expectations as to the extent of the streaming market they will ultimately control, not to mention the profitability of such a competitive and limited market.

Lee Stewart
05-31-2012, 11:47 PM
Well Netflix should care more about their lucrative optical business:

http://www.pcworld.com/article/256421/amazon_instant_video_app_lands_on_xbox_360.html

Amazon streaming is now on the Xbox 360 and will be coming to more devices I suspect as Amazon continues to ramp up their service. As a Prime member I am basically gettting it for free and have dumped Netflix streaming and not really looked back since it was mostly the kids that use it. I also like that many Blu-Ray's I purchase offer free instant streaming at Amazon before the disc even ships.

There are also rumors that Netlix may lose Epix (which makes up another huge chunk of their content) in a bidding war with Apple.

If that happens, look for Netflix stock to plummet. I really wish Netflix would put more effort into both the streaming and disc services. I have been giving my money more and more to Redbox.

Delete

Lee Stewart
05-31-2012, 11:48 PM
I agree that Netflix should taking care of the more its cash cow. Biting the hand that's feeding them will end up biting them in the long run I'm afraid. I think they may have unrealistic expectations as to the extent of the streaming market they will ultimately control, not to mention the profitability of such a competitive and limited market.

Limited Market? They already have over 23 million streaming subs.

HD Goofnut
06-01-2012, 12:01 AM
Limited Market? They already have over 23 million streaming subs.

Unless Netflix can keep their contracts with the providers going I expect that number to plateau in the near future unless they somehow increase content and/or interface quality.

Lee Stewart
06-01-2012, 02:20 AM
Unless Netflix can keep their contracts with the providers going I expect that number to plateau in the near future unless they somehow increase content and/or interface quality.

Who besides Starz has not renewed a contract with Netflix? They have also signed new deals with Dreamworks Animation and The Weinstein Co.

HD Goofnut
06-01-2012, 06:10 AM
Who besides Starz has not renewed a contract with Netflix? They have also signed new deals with Dreamworks Animation and The Weinstein Co.

Isn't their Epix contract about to expire?

Lee Stewart
06-01-2012, 12:19 PM
Isn't their Epix contract about to expire?

Why do you think it will not be renewed?

ack_bak
06-01-2012, 02:58 PM
Why do you think it will not be renewed?

http://www.huffingtonpost.com/2012/04/27/apple-epix-itv_n_1460239.html

Lots of rumors in April that Apple wants an exclusive contract with Epix. Epix deal with Netflix is up in September and we both know who has more cash to bring to the table for this deal. If Apple wants it, it will be theirs. But at any rate it is clear that Netflix is going to have to come to the table with some serious cash if they want to keep Epix content. And this is the real issue for them, as you yourself has pointed out, streaming is not a fixed cost. Every couple of years they will be renegotiating content rights deals and with Apple and Amazon in the mix, well, Netflix is going to have some very tough competition who both have one huge advantage. Cash. Something Netflix has little of.

Netflix customers are not locked into long term contracts and can cancel or suspend their service as they see fit. Major plays by Amazon and Apple could easily sway those 23 million customers to take their business elsewhere. Consumers are much more about what are you doing for me now vs what you did for me in the past.

Lee Stewart
06-01-2012, 05:12 PM
http://www.huffingtonpost.com/2012/04/27/apple-epix-itv_n_1460239.html

Lots of rumors in April that Apple wants an exclusive contract with Epix. Epix deal with Netflix is up in September and we both know who has more cash to bring to the table for this deal. If Apple wants it, it will be theirs. But at any rate it is clear that Netflix is going to have to come to the table with some serious cash if they want to keep Epix content. And this is the real issue for them, as you yourself has pointed out, streaming is not a fixed cost. Every couple of years they will be renegotiating content rights deals and with Apple and Amazon in the mix, well, Netflix is going to have some very tough competition who both have one huge advantage. Cash. Something Netflix has little of.

Netflix customers are not locked into long term contracts and can cancel or suspend their service as they see fit. Major plays by Amazon and Apple could easily sway those 23 million customers to take their business elsewhere. Consumers are much more about what are you doing for me now vs what you did for me in the past.

From your link:

Apple has been stymied for much of the past year in securing marquee Hollywood content. Talks with EPIX are in the preliminary stages and no agreement is considered near, the source said.

The talks could be complicated by EPIX's 2010 agreement with Netflix, which pays $200 million a year for the rights to stream movies to its 23.4 million U.S. clients. That deal gives Netflix exclusive streaming rights to EPIX movies through September - before Apple is expected to trot out its planned TV set.