Tag Archives: business

Streaming Stocks Financial Roundup For Q2

At this point, everyone I’m tracking has reported earnings on the quarter. Let’s see how they did. As a reminder, the video entertainment marketplace is changing quickly. Company financial reports help predict who will be able to fund new initiatives and where the customers are flocking.

Company Market Expectations Actuals
The New Generation
Netflix Earnings: $1.11 / share
Revenue: $0.79 B
Earnings: $1.26 / share
Revenue: $0.79 B
Apple Earnings: $5.63 / share
Revenue: $24.52 B
Earnings: $7.79 / share
Revenue: $28.6 B
Amazon Earnings: $0.34 / share
Revenue: $9.36 B
Earnings: $0.41 / share
Revenue: $9.91 B
The Old Guard
Comcast Earnings: $0.41 / share
Revenue: $13.81 B
Earnings: $0.37 / share
Revenue: $14.3 B
Time Warner Cable Earnings: $1.16 / share
Revenue: $4.93 B
Earnings: $1.24 / share
Revenue: $4.90 B
AT&T Earnings: $0.60 / share
Revenue: $31.33 B
Earnings: $0.60 / share
Revenue: $31.5B
Verizon Earnings: $0.55 / share
Revenue: $27.43 B
Earnings: $0.57 / share
Revenue: $27.5 B

Some specific notes from the linked articles:

  • Netflix got beat up for their price increases, but expects subscribers to get over it in a few quarters.
  • “Cable companies have been losing subscribers to satellite TV services for years, and more recently, to phone-company TV services. They’ve kept their revenue growing by raising prices every year and adding new services like digital video recorders.” – Yahoo News
  • Apple knocked the ball out of the park by selling everything. Lots of new iDoodads out in the marketplace. There was a vague allusion to how they’re going to bring some more neat stuff to iTunes videos.
  • Amazon’s great quarter is attributed to digital media distribution (eBooks, music, video)
  • Time Warner “lost 130,000 residential video subscribers while gaining 54,000 residential broadband customers and 32,000 home phone users in the period ended June 30, according to a statement today.” Time Warner is seeing erosion of their cable business.
  • AT&T made $4.9 billion in the wireless unit, but their other businesses, including U-verse TV, pulled down the net income.
  • Verizon has changed out CEOs. Their new one used to run Verizon wireless. They made their quarter on wireless subscribers. No word on traditional TV services.

So, we see a few trends here:

  • Cable companies are seeing increases in data delivery mechanisms (wireless and/or landline internet) and decreases in cable TV like services
  • Although Verizon & AT&T are dabbling in TV, their money is made providing wireless internet and voice.
  • Online media distribution is growing rapidly
  • Apple still prints gold

This is the story of a market that’s about to change how it thinks about the world. The question is who will fight it, and who will lead it. Especially important to watch will be how Netflix weathers the price change storm and how the cable companies respond to the “low end” competition from streaming video.

Next quarter, I’ll roll a few more companies like Disney, a content house, and Chartered, another cable company.

Netflix Raises Prices: Oh Noes, The Sky It Falling

Well done to Engadget for first spotting the rumor that Netflix was raising prices. Netflix has made it official:

First, we are launching new DVD only plans. These plans offer our lowest prices ever for unlimited DVDs – only $7.99 a month for our 1 DVD out at-a-time plan and $11.99 a month for our 2 DVDs out at-a-time plan. By offering our lowest prices ever, we hope to provide great value to our current and future DVDs by mail members. New members can sign up for these plans by going to DVD.netflix.com.

Second, we are separating unlimited DVDs by mail and unlimited streaming into separate plans to better reflect the costs of each and to give our members a choice: a streaming only plan, a DVD only plan or the option to subscribe to both. With this change, we will no longer offer a plan that includes both unlimited streaming and DVDs by mail.

Netflix Customers Rend Clothes, Dress In Sackcloth

Netflix’s rather prompt and large change has shaken up their loyal following. The internet angry mob is very much out to get Netflix at this point. For a good feel of the anger out there, I recommend the ZDNet article’s summary of Facebook and Twitter posts. Some choice nuggets:

First, there are the comments on the announcement blog post itself. These are pretty dire.

“Are you F#**!!@! kidding me?”

“Way to go again Netflix – Divide and Conquer – EPIC FAIL!!”

“I know I’ll be cancelling my service and going with Blockbuster soon.”

“Sept.1 I’ll be canceling.I do without cable I think I can do without Netflix.”

“Peace out. You’re streaming selection is horrible anyway.”

“Thanks netflix, you just increased my bill too! Currently I am paying 9.99 for 1 DVD and Unlimited Streaming and you want me to pay 15.98!? Tell me how that is cheaper than 9.99.“

Let’s not forget Facebook

the only way that this is terrific for the customer is if you plan to offer your entire collection available for streaming…. otherwise this is just yet another way to choke more change out of your customers…. I mean… are you guys really that strapped for cash? or are you just greedy? ALSO, what a great way to treat you long term customers, we REALLY appreciate it…i can understand you applying it to new customers… but please, explain to me who’s brilliant idea this was… I hear it going like this ” Hey I have an idea of how we can show appreciation to our long term valued customers… let’s take MORE of their money, that way they REALLY feel valued!”….IDIOTS.

Yes, they really are that cash strapped, but I’ll get to that in a minute.

I think that folks are so pissed because the Netflix Streaming + 1 DVD deal was amazing. It was effectively Hulu Plus ($7.99 / month) but without ads and running on a TV combined with the Blockbuster 1 DVD a month plan ($11.99 / month) for 10 bucks. It was a steal. Now it’s just a good deal at $15.98. After the dust settles, people are going to grumble and go back to their Netflix crack.

Basic Netflix Costs and Financials

Netflix is cash strapped and trying desperately to land new streaming content deals, and the streaming content is getting crazy expensive. Look at the signs:

  • Hulu disclosed parts of their Q2 results, and noted that they spent about $8 on content costs per Hulu Plus subscriber (which explains the ads). Hulu is paying for first-run shows.
  • Netflix originally signed content deals that were costing it a total of $180 million per year. That figure is expected to jump 10x to $1.8 billion.
  • The Starz deal included a cap on the maximum number of streaming video users who can access the videos. Netflix crossed that number. They’ll be crossing it in other deals soon.

DVD aren’t cheap either. It costs Netflix about $1 to ship a movie out and back. If Netflix’s streaming package was well priced at $7.99, two DVDs will eat the price difference between the current streaming-only ($7.99 / mo) and the streaming + 1 DVD ($9.99 / mo) packages. This move is signaling that Netflix wants first run content and that they’ll be using up a good portion of that $7.99 streaming cost to pay for that first run content.

Also consider that Netflix doesn’t appear to have as much money to play with as it should. A Seeking Alpha analyst has concluded that despite Netflix reporting a profit, they’re cash-flow poor and are short on cash to use in funding new endeavors:

In other words, over the last quarter, Netflix earned around $116MM in operating cash flows but most of this (at least $77MM in rising payables) is not actually real cash flow. That means Netflix only earned about $39MM in operating cash flow last quarter.

But wait, it gets even more strange. Of that $39MM the company earned, another 22MM of it came from “accrued expenses” and another $15MM came from “deferred revenue.” I know it seems pretty crazy, but Netflix didn’t actually earn any money last quarter.

This is why Netflix is making the move in a drastic fashion. It’s a large increase for a segment of the Netflix users and the increase does not grandfather in existing customers. Netflix cannot afford to take their time with a transition band or bleeding for a bit. Netflix’s CEO has said that they’ll treat DVD and streaming as two separate business units. By breaking into the two clear services, it allows Netflix to upgrade the streaming and give both sides what they really want.

Stick It To The Netflix Man

One thing I did see in all the angry outbursts were threats to go to other competitors, start using Redbox more aggressively, and so on. “That’ll show Netflix!” they cry. Probably not. I suspect that the customers who are most upset are those that Netflix was losing money on. If the customer was running streaming video and burning a hole in their Unlimited DVD plan, that $1 per DVD shipping costs was killing Netflix. You leaving will not upset Netflix. It’ll increase their profitability.

All that said, if someone wanted to stick it to Netflix, they’d rent as many movies as they could right up to the September 1st changeover deadline.

Other Summaries From Around the Web

Update: Lazy Man & Money blog had the most rational take I’ve seen so far.

Streaming Video Earnings Season

The success of cable alternatives (as well as the cable companies) depend on the financial might of the companies involved. With the March – June quarter closed out, earning season is upon us once again. Here’s when the various companies are planning to send out earnings announcements.

Company Earnings Date Market Expectations
The New Generation
Netflix July 25, 2011 Earnings: $1.11 / share
Revenue: $0.79 B
Apple July 19, 2011 Earnings: $5.63 / share
Revenue: $24.52 B
Amazon July 26, 2011 Earnings: $0.34 / share
Revenue: $9.36 B
The Old Guard
Comcast Aug 3, 2011 Earnings: $0.41 / share
Revenue: $13.81 B
Time Warner Cable July 28, 2011 Earnings: $1.16 / share
Revenue: $4.93 B
AT&T July 21, 2011 Earnings: $0.60 / share
Revenue: $31.33 B
Verizon July 22, 2011 Earnings: $0.55 / share
Revenue: $27.43 B

Some popular companies associated with streaming are privately held. These include:

  • Hulu – A private company joint venture of NBC-Universal (Comcast), News Corporation, The Walt Disney Company, Providence Equity Partners. They may be changing hands soon.
  • Roku – Another private company that is in private hands. Netflix is rumored to have a stake in Roku.
  • Crackle – This Hulu / Netflix follow-on is wholly owned by Sony.

Apple is rather late to the game to say when they’ll announce earnings. The last two times were January 19th and April 21st. This should place the announcement close to July 19th.

Update: Apple confirmed for July 19th.

Update 2: Netflix now 25th, Amazon the 26th, Comcast Aug 3rd.

Yahoo to Acquire Hulu?

The business world is abuzz with the idea that Yahoo or some other suitor has made an unsolicited bid to purchase the streaming video upstart Hulu. There are two things that have surfaced as part of this that may piece together what’s happening.

Hulu’s Revenue for 2011

The Sacramento Bee article had a quick throw-away on Hulu’s revenue to possibly justify it as a takeover candidate.

In February, CEO Jason Kilar said Hulu will have 1 million paying customers by the end of the year and generate nearly $500 million in revenue, up from $263 million in 2010. He has said the company is profitable.

First, the quick math. 1 million customers x $7.99 / month x 12 months. That’s about $100 million, out of $500 million in revenue. That leaves about $400 million in revenue for ads. There’s an axiom for the internet that says “Look at who is paying money. They’re the customer. If you’re not paying money, you’re not the customer. You’re the product.”

If a company acquires Hulu, it’s not for 1 million customers who are actually paying. It’s for their advertising base of 27 million viewers. The HuluPlus viewers are interesting, but the advertisers pay the bills.

What about Yahoo acquiring Hulu?

Yahoo has a very advanced ad platform, up there with Google and Microsoft. If Yahoo were the suitor, they’d be vertically integrating and competing against Google’s YouTube purchase. YouTube is the number one web video destination (another “free” site – so the customers are the advertisers) with Hulu being close to number three. An acquisition extends the battle for web advertising space as Yahoo makes a move into video.

I do think that an acquisition by a non-media company (Comcast being a media company example) with some deep pockets would be beneficial for Hulu. It’d have more money to invest in content, which drives their customer base and advertising opportunities. I’m cautious about a media company media acquisition since they’re very conservative and tend to protect existing markets more than grow new ones.

Since everyone involved is staying mum, we’ll have to see how it develops.

Various web reports