NFLX - Netflix

[LC]

I actually think this is a good business and would like to own pieces, at least here is how I see it:

 

-Netflix has the most shallow pockets but has first mover advantage. The most subs and "everyone" knows Netflix.

 

-Then you have the other guys: Hulu (Disney/Comcast), Disney+, AmazonPrime, HBO (AT&T)...to me all these have deeper pockets than Netflix - they have other revenue streams to leverage if they want to dump into content acquisition.

 

So the question really becomes how the competitive positioning will play out. I agree there are substantial barriers to entry and it seems like this will turn into a handful of participants owning the entire market.

 

The question is, will there be some cooperation amongst them such that the consumer is OK with subscribing to 2-4 providers, or will they become incredibly competitive?

 

 

[rb]

HBO actually has a huge international installed base. I had HBO in a "shithole country" in Eastern Europe 1996. I was surprised when I moved to Canada in 2000 and it didn't have HBO. I was like what kind of shithole country is this, it doesn't have HBO?

 

Nobody over there would know what a hulu is and Amazon isn't everywhere, but they would gobble up Disney+. Disney just has a formidable library that is hard to match.

 

Oh and since we're talking about deep pockets we probably shouldn't forget Apple. They seem to be committed to have a part in this and can outspend NFLX just out of petty cash.

[Broeb22]

I actually think this is a good business and would like to own pieces, at least here is how I see it:

 

-Netflix has the most shallow pockets but has first mover advantage. The most subs and "everyone" knows Netflix.

 

-Then you have the other guys: Hulu (Disney/Comcast), Disney+, AmazonPrime, HBO (AT&T)...to me all these have deeper pockets than Netflix - they have other revenue streams to leverage if they want to dump into content acquisition.

 

So the question really becomes how the competitive positioning will play out. I agree there are substantial barriers to entry and it seems like this will turn into a handful of participants owning the entire market.

The question is, will there be some cooperation amongst them such that the consumer is OK with subscribing to 2-4 providers, or will they become incredibly competitive?

 

Agreed that Netflix is still a little bit of an underdog despite their reach because of the size of the companies they're up against. I think they will carve out a place long-term, in no small part because they need to in order to survive vs. the other behemoths.

 

HBO doesn't compete well long-term as part of AT&T. AT&T has too much debt to really invest in HBO to the extent needed. HBO has been behind for years (GoT was their saving grace) and I seriously doubt they will catch up especially with AT&T mgmt calling the shots. I doubt that AT&T knows how to handle talent and storytellers effectively, so I think there will be a slow bleed out of HBO.

 

Hulu is basically owned by Disney so I don't see that as a true fierce competitor.

 

Peacock (Comcast) could be a competitor, although I'm not super clear on how they plan to position the service.

 

All in all, I see Disney, Netflix, and Amazon fighting for viewers in this business, and they all have somewhat different ways of offering video. Disney has a lot of their own content to leverage, which gives them some cost advantages in developing content a lot of people want to watch. Netflix is trying to develop its own content, and has had some success so far, but only a couple iconic shows that I can think of (Ozark, The Irishman, Narcos, Stranger Things, House of Cards). They are trying to be all things to all people and do it with mostly their own content, which is tough. They have not yet hit on a timeless show like Friends or Seinfeld or The Office that keeps people coming back thought House of Cards was really good, but they're doing pretty well in my amateurish opinion. And Amazon has some of its own content but seems more content to distribute other creators' content. I tend to see a lot more shows/movies available to buy on Prime and a lot less original content.

 

[Jurgis]

As a consumer, I loved Netflix for the DVD/BluRay service where I could get pretty much anything as soon as it hit BluRay release independent on who owned it.

 

Now Netflix is starting to screw DVD customers. Yeah, I know, there's probably only five of them left, but still it sucks. Waiting for not-even-so-new movies is long, they are sending me DVDs that are #5 in my queue because everything newer is on "short wait" that is taking couple months. In other words, screw customer. We may have to cancel DVD service.  :-\

 

Streaming wise for now we are not gonna cancel Netflix. And Amazon is a gimme coming free with Prime. Still haven't subbed Disney+ although thought it might be worth it with Hamilton. Never have subbed HBO or others and likely won't.

 

Don't have to say much business wise that others haven't covered.  8)

[nickenumbers]

Really interesting thoughts.  I will keep turning it over in my head.  It seems like a wrestling match to me.

[Packer16]

One potential issue IMO is globally each country is going to want its local champion in media & the internet is going to fragment into country specific markets. This is happening in India & China and it is a matter of time that it spreads to the rest of the world.  Relying on global growth & scale can be more complicated & less profitable than in the US.

 

The other question about Netflix is they have a monetization disadvantage versus others like Disney & the other firms who can monetize content outside of streaming & for Netflix to build that would be very expensive.  IMO I think the idea of them somehow decreasing spend & keeping the train going (growth) is a little pie in the sky & you can see that in the credit ratings for its debt BB- implying a large probability of default (10% @ 5yrs & 17% @ 10 yrs).

 

Packer

[Broeb22]

One potential issue IMO is globally each country is going to want its local champion in media & the internet is going to fragment into country specific markets. This is happening in India & China and it is a matter of time that it spreads to the rest of the world.  Relying on global growth & scale can be more complicated & less profitable than in the US.

 

The other question about Netflix is they have a monetization disadvantage versus others like Disney & the other firms who can monetize content outside of streaming & for Netflix to build that would be very expensive.  IMO I think the idea of them somehow decreasing spend & keeping the train going (growth) is a little pie in the sky & you can see that in the credit ratings for its debt BB- implying a large probability of default (10% @ 5yrs & 17% @ 10 yrs).

 

Packer

 

So you're saying Netflix needs to buy SeaWorld and create water rides and action figures based on Ozark? Because that would be kind of awesome.

 

For what its worth, I do think there could be an opportunity for a well-heeled competitor to come in and get more out of SeaWorld. Their pricing is so far below Universal and Disney that any entity with a respectable amount of content could I think make a lot of money by investing in better attractions and consistently increasing price. They would have a lot of headroom to do so.

 

[d29]

As an anectode from my second world unimportant country Netflix is mainly competing with HBO Go. I believe this repeats in many other small/medium sized countries.

 

HBO is having high quality additions every week, especially for kids. They have added all the Star Wars movies this week. They add about a high quality movie for kids each week. Plus all the original HBO series. On the other hand Netflix is adding a lot of volume with low quality, second rate shows and a decent movie every 2 months.

 

If I am to drop one service it would be Netflix. And the interface for HBO Go has not been updated in ages, it routinely forgets what you watch and where you're left.

 

HBO has been for a long time in many countries. It is synonymous in many of these countries with high quality content. HBO will be very successful with MAX.

 

Considering the other competitors as well (Disney, etc.), Netflix will have a hard time medium term.

[Broeb22]

https://variety.com/2020/tv/news/warnermedia-layoffs-warner-brothers-hbo-1234729976/

 

For those who think HBO Max will be a real player in streaming, I don’t see how this will help the, get there. You can’t cut your way to global scale and relevance. On top of senior Warner execs leaving last week, this feels like the beginning of the end of HBO’s relevance.

 

I could be wrong, but they have a lot of ground to make up and unless they are cutting these folks then adding fresh new ones to reposition, I can’t see this move helping growth or morale.

[Spekulatius]

https://variety.com/2020/tv/news/warnermedia-layoffs-warner-brothers-hbo-1234729976/

 

For those who think HBO Max will be a real player in streaming, I don’t see how this will help the, get there. You can’t cut your way to global scale and relevance. On top of senior Warner execs leaving last week, this feels like the beginning of the end of HBO’s relevance.

 

I could be wrong, but they have a lot of ground to make up and unless they are cutting these folks then adding fresh new ones to reposition, I can’t see this move helping growth or morale.

 

I agree, ATT has a Midas touch when it comes to buying other business. I think HBO will become a casualty as well.

[rb]

https://variety.com/2020/tv/news/warnermedia-layoffs-warner-brothers-hbo-1234729976/

 

For those who think HBO Max will be a real player in streaming, I don’t see how this will help the, get there. You can’t cut your way to global scale and relevance. On top of senior Warner execs leaving last week, this feels like the beginning of the end of HBO’s relevance.

 

I could be wrong, but they have a lot of ground to make up and unless they are cutting these folks then adding fresh new ones to reposition, I can’t see this move helping growth or morale.

 

I agree, ATT has a Midas touch when it comes to buying other business. I think HBO will become a casualty as well.

Well I hope you're wrong because I love HBO, but who knows ATT did mess up a lot of business. So we'll see.

 

To Broeb's comment HBO doesn't really have to get to global scale and relevance. It already has global scale and relevance. So Netflix is really the one that has to elbow its way in.

 

Another thing to consider as Netflix must go into developing countries to continue growth is that cable is way, way cheaper in the developing world. A Netflix subscription may be more expensive than a whole cable package. So the value proposition is is very different in those parts of the world.

[Broeb22]

https://variety.com/2020/tv/news/warnermedia-layoffs-warner-brothers-hbo-1234729976/

 

For those who think HBO Max will be a real player in streaming, I don’t see how this will help the, get there. You can’t cut your way to global scale and relevance. On top of senior Warner execs leaving last week, this feels like the beginning of the end of HBO’s relevance.

 

I could be wrong, but they have a lot of ground to make up and unless they are cutting these folks then adding fresh new ones to reposition, I can’t see this move helping growth or morale.

 

 

 

I agree, ATT has a Midas touch when it comes to buying other business. I think HBO will become a casualty as well.

Well I hope you're wrong because I love HBO, but who knows ATT did mess up a lot of business. So we'll see.

 

To Broeb's comment HBO doesn't really have to get to global scale and relevance. It already has global scale and relevance. So Netflix is really the one that has to elbow its way in.

 

Another thing to consider as Netflix must go into developing countries to continue growth is that cable is way, way cheaper in the developing world. A Netflix subscription may be more expensive than a whole cable package. So the value proposition is is very different in those parts of the world.

 

I'm sorry, is HBO the service with 36 million subs and growing mid-single digits DURING A GLOBAL PANDEMIC WHEN PEOPLE ARE TRAPPED INSIDE or 190+ million subs growing subs at 27%?

 

It's kind of laughable at this point to make the statements you just made.

[Xerxes]

Never owned Netflix. Still recall that article i was reading in 2015 on Barron' where the writer was being foolish by not seeing outside the box, and really not thinking what it could become, instead he/she keep talking about that they are keep piling up debt, and that it is free cash flow negative, that they amortize their movie cost over several years instead of taking a hit one Y1, and that soon-competition will come, and that their shows are not mostly theirs. And that it is great product but not a great stock, and expensive on all metrics. And of course i was listening to all this garbage.   

 

Today, this has been become a 200 million sub. juggernaut that has reached its critical mass and achieved escaped velocity, where the sub. base is now so massive that they are breaking on free cash flow and even dare I say, management is thinking about thinking to do share buyback. The beauty is that unlike Tesla that just kept issuing equity, they have been tapping the bond market all these years, if i am not mistaken, so the shareholder base is getting the full undiluted juice.

 

On buyback, no doubt Barron' will say that they are buying back shares with all their valuation metrics at an all time high. If the past 10 years is any indication, that means while relatively speaking shares today are expensive, in absolute terms share buyback may look smart 5 years from now.

[Longtermlens]

Good 5 minute run down by Hamish Douglass of Magellan recently - talked about it on the equity mates podcast dated feb 24 - back of envelope - pegged it at $1T 5-10 years out.

 

Also - India opportunity will be interesting to keep an eye on.

 

https://www.google.com/amp/s/techcrunch.com/2021/03/03/netflix-to-release-41-original-indian-shows-and-movies-this-year/amp/

[Liberty]

https://www.cnbc.com/2021/03/11/netflix-password-sharing-crackdown-being-tested.html

[rkbabang]

https://www.cnbc.com/2021/03/11/netflix-password-sharing-crackdown-being-tested.html

 

I wonder how they know?  I have multiple properties, are they going to make me have more than one subscription for each home?  Or will I just keep getting annoying popups when at my vacation home and not be able to watch without contacting them?  This seems self defeating, because I will certainly go down to 1 screen at a time for each location rather than paying for 3 screens as I do now.  My son lives at home and uses our account, so he will not be able to use it when we are using it and vise versa if I go down to 1 screen at home.  I think they are just going to start annoying a lot of customers.

 

[blindsquirrel]

I think Netflix represents a compelling opportunity fo the next decade and I published an in depth writeup about the company. Under my assumptions I think thecompany can deliver a 15+% CAGR over the next 10 years for shareholders. 

https://blindsquirrel.substack.com/p/netflix-focus-and-execution

Due to the lenght of the article I have atacched  the link and here is the elevator pitch for the idea: 

Netflix is the leading streaming service in the world, run by a talented management team in an industry with multidecade tailwinds on the ongoing shift towards OTT video consumption. Its unprecedented scale, untapped pricing power, innovative culture, and local presence make the company a compelling opportunity for the next decade.

  

I would love to receive some feedback 

Kind regards