Netflix Earnings Expected to Rise

Question: Comment on revenue, profit, and loss of key industry players?

Summary: Netflix has been going through a rough couple of months. Shares have lost 60% of their value since July, partially because of their price raise and partially because of their botched DVD-streaming split, which fell through last month. Despite all of this, analysts are expecting Netflix to see a third-quarter profit of 96 cents a share, way up from last year's third quarter earnings of 70 cents a share. Analysts are also expecting revenue to reach 813 million dollars, as compared with last years third quarter revenue of 553.2 million dollars. This rise in revenues is expected to come partially from the rise in prices from $9.99 for a DVD-streaming plan to $15.98, and from Netflix's work with several other broadcasting firms, including Fox and CBS. Analysts have said that despite the tough quarter, Netflix is working hard on regaining customer appreciation, and will likely continue to see a rise in profits.

Analysis: Netflix has absolutely been through a very rough quarter, no one will deny. Yet at the same time it's growth opportunities remain large, and with its planned expansions into Canada and Europe over the next few quarters, it certainly has the opportunity to continue to produce a very hefty profit. Nevertheless, I can't help but wonder if these estimates aren't a little bit too high. Netflix's change in prices may have caused many to leave, and while the majority stayed, I would not at all be surprised if most switched to a less expensive streaming only plan. The disastrous plan to split the company's DVD and streaming segments into different companies likely had an extremely large impact on confidence in the company, and may have impacted revenues more than analysts are predicting. I am not an analyst, so I cannot say for sure what data those who are use, but looking at it from my armchair blogger's perspective, I am going to remain cautious about a $0.96 EPS and $813 million revenue coming out on Monday afternoon.

http://www.marketwatch.com/story/netflix-profit-expected-to-rise-in-tough-period-2011-10-21

The Battle of Blockbuster and Netflix

QUESTION:

Comment on revenue, profit, and loss of key industry players.

SUMMARY:

We all know the rivalry between Netflix and Blockbuster. Netflix is undoubtedly the stronger contender, but for a while there (mid-2000s), it looked like Netflix and Blockbuster were neck-in-neck. Basically, Blockbuster started out as a DVD rental/retailer. It was doing pretty well; it was essentially the only one of its kind and dominated the market. In 2004, Netflix was born, and with it, the rise of DVD by mail. Now, in 2009 Blockbuster tried to jump on the bandwagon and rent out DVDs this way--by mailing them to consumers. But it was just too late. Netflix had already snatched up many of Blockbuster's old clients and created a name for itself in the movie distribution business.

In 2010, Blockbuster filed for Chapter 11 bankruptcy. Bankrupt, essentially defunct, and very sad, Blockbuster was bought by media provider giant, DISH Network. Thus, Blockbuster became an entity under DISH and no longer exists by itself as a company anymore.

OPINION:

It's hard to say whether Netflix bought about the demise of Blockbuster. Would Blockbuster still have gone bankrupt without the rise of Netflix? I think it's safe to say that it definitely wouldn't be making as much money as it was in the 1990s--but primarily due to the rise of piracy and illegal downloading on the internet.

What is most interesting to me, however, is that DISH Network acquired Blockbuster. Why would they want control over a dying company? It's still somewhat of a mystery--DISH believed it could resurrect the DVD rental store, it thought that Netflix was just a trend, it thought that it could compete price- and service-wise with the new Netflix? Regardless, DISH disregarded (or at least discounted) Blockbuster's consistent losses in revenue and decided to go ahead and take over the company. Now, Blockbuster is trying to steal Netflix's customers through Twitter campaigns and the like, but I don't actually think Blockbuster will ever be more profitable or desirable than Netflix.

SOURCES:

http://blogs.wsj.com/digits/2011/09/29/blockbuster-takes-to-twitter-after-netflix-stumbles/?KEYWORDS=blockbuster+netflix

Distributors in the Recession

Picture: The stock prices of Netflix, Comcast, and DirecTV from the end of 2007 to the end of 2009. Source is Google.com/finance

Sources in this blog post:

“Netflix: Quarterly Earnings”

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

“Comcast Investor Relations – Earnings”

http://www.cmcsk.com/earnings.cfm

“DIRECTV Inc. – Quarterly Results”

http://investor.directv.com/results.cfm

Question: How has the recession (2008-2009) affected companies’ balance sheets?

Source Summary:

This blog post will be different from many previous ones because, while other posts discuss articles from some outside source, this question calls for an analysis of balance sheets released by companies at the end of quarters. In order to best do this, I did a comparison of several end-of-year (Fourth Quarter) budget sheets for the three largest distributors, Netflix, Comcast, and DirecTV.

Since the recession happened in 2008-2009, the best method of measuring how the three giants were affected is to compare total assets before, in December of 2007, to assets afterwards, in December of 2009. Netflix lost about $61 million during the year of 2008, but it gained $62 million in assets the next year, bringing their net gain to be $1 million. Comcast lost around $664 million in assets during the two-year period, but since its total assets in the end of 2009 completely dominated Netflix $112 billion to $679 million, Comcast is still in a rather well position. DirecTV was unfazed by the recession, gaining approximately $3.2 billion in assets during the two-year period, but it still had less than Comcast with only $18 billion in total assets.

My Analysis:

Overall, the recession barely damaged the three giants of the media distributor industry. While Comcast did suffer losses, they were relatively small given the grand scale of the entire company’s assets, and the company made a quick recovery the following year. This is rather interesting because many other companies from other industries suffered much greater losses, including the most powerful ones, while distribution is still as healthy as ever, if not more so. To put this in analysis, it seems that, despite lower income and less purchasing, the American public does not want to face living without television. Especially curious is that, while entertaining and moderately informative, there are many alternatives to television that are cheaper and healthier, meaning that a non-essential good is surviving better than some essentials. While this trend is unusual, it is good news for investors and the companies themselves, as media is a good which is almost immune to recession.

Current Events - DirecTV

DirecTV May Lose Fox Cable Channels In Contract Fight

Question: What are some current events in your industry? What is the impact of these events on the industry?

Summary: There is a possibility that DirecTV will lose the rights to broadcast Fox regional sports networks as well as some cable channels (including FX and National Geographic) this November due to a contract-renewal dispute. These disputes are becoming more and more commonplace due to the rising levels of competition within the television industry. Network owners are able to set higher prices, because there are more companies that want to enter contracts. Furthermore, traditional distributors are seeing a decrease in the expected growth of subscriptions due to newer venues for media such as Netflix and Hulu.

Fox broadcast network and Fox news will remain untouched until the end of the year and end January, respectively. Part of the problem in the current negotiations is that News Corp. (which owns Fox) wants to bundle these services to the regional sports networks, which will allow them to ask for a higher price - as much as a 40% increase on the side of consumers.

Analysis: This article is very rich in some major concepts of media and business:

1) High competition allows for high prices.

2) The entrance of online media into the market has created significant problems for traditional media.

Because of the higher competition, network providers are seeing the opportunity to increase their revenues by demanding higher prices from their customers. Since the products they are selling have very high brand loyalty (such as Fox news or Fox regional sports), they have a lot of leverage over service providers to extract the price that they want - especially since for these providers giving up a network means loosing customers to their competitors that choose to pay the new, higher, price.

However, now the competitors are not all equal. Traditional service providers face the challenge of competing against online media. Companies such as Netflix and Hulu (as well as possibly YouTube and Amazon in the near future) do not have the same amount of costs as do the traditional service providers since they do not need as much physical presence. This allows them to increase their profit margins or to keep the price of their products lower than that of traditional broadcasters while buying access to networks at the price demanded.

Question: What non-US companies are key players in the industry?

Summary: The most global media company in the world is a German based corporation named "Bertelsmann AG".

Bertelsmann is an incredibly broad media company, providing not just radio and television (through its subsidiary RTL), but also newspapers and magazines (through its subsidiary Gruner + Jahr, the largest magazine publisher in Europe), and books (through its subsidiary Random House). It operates Direct Group Bertelsmann, which operates "media clubs, bookstores, online activities, publishing imprints and distribution companies in over 16 countries." It also operates an outsourcing service provider called Arvato, a subsidiary largely distinct from its other, more media-centered subsidiaries.

The company employs over 100,000 people in 50 countries worldwide, making it "the worlds most international media company".

RTL, the company's radio and television subsidiary, accounts for 35% of its revenue, is the largest source of income, partially the product of a plan to expand its television services internationally. RTL now provides services in 11 countries, including production companies in the United States.

Analysis: Bertelsmann is the most international media company, true, but it is certainly not the largest media company in the world. It still has a long ways to go before it catches up to the likes of Disney, which is currently the largest media conglomerate in the world, or even AT&T, the largest telecommunications provider in terms of revenue ($124 Billion vs. Bertelsmann's $15 billion).

What kind of opportunity does it have to expand? While breaking a company like Disney or AT&T off its throne, especially here in the US, is far too much to hope for anytime soon, Bertelsmann does have a great ability to take advantage of new, important markets, which could make it a much larger conglomerate - primarily, digital media. It owns the largest book publisher in the world, Random House. As the digital media slowly but surely eats away at the publishing profits, an entrance into e-books could save some of the lost revenue. Owning Random House also gives it a tremendous jumping point with material to publish, and a large market familiar with the name. It could also enter the digital movie streaming service; Netflix is scheduled to begin offering its services in two European countries in the first quarter of 2012. By establishing itself as a homegrown competitor, Bertelsmann could provide a successful service in Europe.

Sources: http://www.bertelsmann.com/bertelsmann_corp/wms41//customers/bmcorp/pdf/Annual_Report_2008_final.pdf

http://www.bertelsmann.com/

http://mashable.com/2011/07/15/netflix-europe-2012-report/

The Global Media Giants

Question: Which companies in your industry are most global? What has been the key to their success in other countries?

Summary: Five major "Global Media Giants" exist in our media industry as of today. Those five giants are "Time Warner (1997 sales: $24 billion), Disney ($22 billion), Bertelsmann ($15 billion), Viacom ($13 billion), and Rupert Murdoch's News Corporation ($11 billion)." The two golden rules those companies have followed in order to achieve success are the following:

1) "Get bigger so you dominate markets and your competition can't buy you out. "

2) "Have interests in numerous media industries, such as film production, book publishing, music, TV channels and networks, retail stores, amusement parks, magazines, newspapers and the like...firms that do not have conglomerated media holdings simply cannot compete in this market. "

Analysis: At a first glance those two rules might seem simple enough to follow, but the key queiostions are - how do you "get bigger"? And how can you obtain and keep "conglomerated media holdings" afloat? There are answers to those questions - of course there are - but not a single one out of tose five companies is going to "spill the beans" and reveal all of its secrets.

What I found interesting, however, was that all of these companies started becoming what we now call "media giants"around the same time (1990s) - Time Warner (1992), Disney (1995), Bertelsmann (1994), Viacom (1994), and Rupert Murdoch's News Corporation (1995).
That made me wonder whether it's even possible for the other, newer, companies to reach that same level those five giants have reached, or possibly even overthrow them sometime in the near future...

Sources:http://www.fair.org/index.php?page=1406

Netflix: The Most Global Industry (In The Americas)

Articles in this blog post:

“Netflix Expands to Latin America Countries”

“Netflix to Stream Films and TV Abroad”

“Netflix Launches in Canada”

Question: Which company in your industry is most global? What has been the key to their success in other countries?

Article Summary:

Starting on September 5 this year, Netflix began selling subscriptions to their online video streaming service in various nations in Latin America, starting with Brazil and expanding to 43 nations in Latin America, including Mexico, Argentina, and islands in the Caribbean. This service, which costs about $9 a month, only includes unlimited streaming and offers popular shows and movies in English, Spanish, and Portuguese.

This venture into the global market is not the first time Netflix left the United States in order to attract more customers. Last year in September Netflix made their first foreign venture by setting up their unlimited streaming service for use in Canada, though they did not invest in letting Canadians order unlimited DVDs by mail, which was included in all US Netflix subscriptions. For the most part this venture has paid off, as Netflix announced recently that it had gotten one million Canadian subscribers in less than a year since the company expanded there. However, there have been no further announcements of whether Netflix wants to make streaming available in any further countries.

My Analysis:

The interesting trend in the field of media distribution is that, while several companies are faring well in the United States even with the recession, little progress has been made towards creating a multinational corporation. In England, which is very similar to the US in regards to language, wealth, and hobbies, popular companies like Comcast and DirecTV are unheard of, despite being giants in the industry here. As such, Netflix’s transition into countries outside the United States is welcome – while it still is limited to the Americas, it shows a significant effort to increase their viewer base, make more money, and give people in those countries a greater consumer surplus.

Netflix has been hailed several times for being innovative in the industry and growing at a substantial rate. With the transition of going from being in one country to two to almost 50 in the course of a couple years, and the good report of one million customers when being in Canada for only a year, Netflix is once again showing its potential as a major contender in the form of media distribution. The key to this success is that they have a product relatively easy to produce – after all, most movies and shows already exist on Netflix, not many changes are needed to show them in another country – and incredibly easy method of distribution compared to tangible goods since everything is online. While the change from being in the Americas to overseas would require a big investment, I feel that Netflix has the potential to become a truly global corporation on par with the likes of McDonalds for being able to efficiently produce a relatively cheap but valued good.