Netflix: The New Arch-Frenemy
The Albanian Army is coming everyone, watch out!
We’re only into week 1 of big media companies reporting their quarterly earnings and the most prominent name hasn’t been CBS Corp, Time Warner Inc, Comcast Corp, and Viacom — instead it’s all been about Netflix.
Pretty much on each of these companies’ conference calls, the $4 billion company from Los Gatos, California was a key reason for a boon to the bottom line by supplying ’found money’ by digital licensing of shows that would have been gathering dust on a shelf somewhere in Hollywood. But also on the calls for several of the same companies, Netflix was seen by analysts as a threat to their future. Let’s not forget the four who reported this week have combined market value of over $160 billion.
At CBS on Tuesday, which most people see as a broadcast and billboards advertising company, the first quarter was given a nice bump from its licensing of old CBS shows like”‘Cheers” but also by newer cable shows like Showtime’s “‘Dexter” and “Sleeper Cell”. Here’s the ever ebullient CBS CEO Les Moonves telling analysts on Tuesday how great Netflix and other copycats are:
“Content is forever and quality content never goes out of style. Nowhere is this more evident than the way we monetize our content digitally. In addition to the deals we struck with Netflix and Amazon, other online video distributors are looking to license our library content. These deals are having a big impact on our financial results, adding meaningful, very high margin dollars to our bottom line”
Could a Netflix-cable alliance spur HBO to go rogue?
A potential alliance between online video streaming company Netflix Inc <NFLX.O> and cable companies could spur cable television’s biggest premium player HBO to consider its options beyond the set-top box and go directly to customers on the Web.
But not anytime soon.
Analysts say Time Warner Inc’s HBO, which has more than 28 million customers through its cable, satellite and phone partners, would be in no hurry to risk hurting their very profitable business based on a perceived threat from Netflix or any other newcomers. “Why fix it if it’s not broke,” said Standard & Poor’s analyst Tuna Amobi. “You’re virtually jeopardizing billions of dollars, it seems remote from our perspective.” People familiar with HBO executives’ thinking say this has been looked at and they ‘have done the math’ and are even more sceptical it makes sense. Yet the question, which is often asked, comes up again with the news that Netflix Chief Executive Reed Hastings has opened early talks with cable operators for a partnership.
If these Netflix talks come to fruition the alliance could start out as a billing partnership — with Netflix appearing as a line on cable customers’ bills. But the talks have also encompassed the possibility of Netflix shows one day being offered on-demand say people familiar with the talks. On a financial basis the two could not be more different. Netflix has warned investors it will likely turn in a loss this year, while HBO will likely grow its $1.5 billion in operating profits. In creative terms, Netflix is dipping its toe into producing original shows, while HBO is a record-breaking Emmy-award winner nearly every year. The concern for cable investors is that even though Netflix is still seen as a poor man’s HBO, with its package of older TV series and movies with few original shows, it will compete on a level playing field in the battle for customers’ time on a set-top box. Hastings frequently says Netflix will look more like HBO in the future. Last month, his company launched ‘Lilyhammer‘, the first of five new original series on its service and likely will look at more as it tries to give its customers reasons to stay on even as programming costs rise. But in a potential partnership with cable, Hastings focus will primarily be on pay television’s 100 million home distribution. “We believe distribution agreements with the cable providers could materially increase Netflix’s subscriber base in a relatively short period of time,” said Barclays Capital analyst Anthony DiClemente. “The question for Netflix, however, is how to reach greater scale without sacrificing all the economics to its cable partners.” Such a partnership could also lower acquisition costs and improve profitability he added. Even after guessing a fairly high overlap between Netflix’s 23 million subscribers and those homes. There would still be plenty of room for growth if Netflix is offered as some sort of discounted add-on deal to consumers. “Netflix is at a point where they are trying to get as much distribution as possible. However, I think Netflix needs the cable distributors more than vice versa,” Morningstar analyst Michael Corty said. Such a deal would not be a million miles away from something Comcast Corp <CMCSA.O> has already been announced the launch of Streampix, a Web-based extension of its on-demand programming with a wide range of older TV shows and movies. Perhaps the earliest example of how this could work is seen with the lastest version of Apple Inc’s <AAPL.O> Apple TV set-top box, which now allows users to sign up and get billed directly for Netflix through the box.
All in all, HBO bosses might end up having to take heed from a character in their award-winning show ‘The Wire’ and understand the “game done changed.”
Tech wrap: Netflix gets subscribers back
Netflix’s fourth-quarter revenue outpaced Wall Street’s expectations as the video rental website reversed subscriber losses to sign up more than 600,000 new U.S. customers in the period, pushing its shares up. Netflix posted a 47 percent leap in fourth-quarter revenue to $876 million, outpacing an average forecast for $857.9 million, according to Thomson Reuters I/B/E/S.
Symantec took the rare step of advising customers to stop using one of its products, saying its pcAnywhere software for accessing remote PCs is at increased risk of getting hacked after blueprints of that software were stolen. The announcement is the company’s most direct acknowledgement to date that a 2006 theft of its source code put customers at risk of attack. Also on Wednesday, Symantec reported a higher quarterly profit and issued an outlook in line with Wall Street estimates.
Europe proposed strict new data privacy rules, putting greater responsibility on companies such as Facebook to protect users’ information, and threatening those who breach the code with hefty fines. But the move, which legislators say is designed to better defend children against predators, has rattled major technology and Internet-based companies, with executives concerned the legislation will be almost impossible to implement in full or will do serious damage to their business models.
Apple’s customer service plan for the iPhone makes them more appealing to thieves because the phone’s warranty applies to the phone and not the owner, Mitch Lipka writes. This approach thrills many Apple owners, who have boasted on message boards of how generous some stores have been in replacing broken iPhones. But that same approach has apparently rewarded a lot of thieves, Lipka adds.
You are aware that NFLX actually lost over 300K paid streamers and 2M paid DVD users.
The total gains were around 13K, nowhere near the 600K your article is touting.
Free subscribers are not actual subscribers– this is a VERY misleading report by Netflix. Borderline fraudulent.
Familiar script: Home entertainment spending slips
Spending on home viewing of movies and television, on a downward spiral in recent years, fell again in 2011 as sales of DVDs and rentals at video stores dropped.
Total U.S. consumer dollars spent on home entertainment — including DVDs, video on demand and online streaming — declined 2.1 percent to $18 billion for the year, according to industry group DEG: The Digital Entertainment Group. Consumers continued to shift to lower-priced rentals from companies such as Netflix and Coinstar’s Redbox kiosks, eschewing outright ownership.
The DEG pointed to bright spots, including a 20 percent jump in sales of high-definition Blu-ray discs that topped $2 billion for the first time. “The industry’s performance clearly stabilized in 2011,” it said in a statement. (The top choices for the year? “Harry Potter and the Deathly Hallows – Part 1,” followed by “Part 2″ at No. 2)
Meanwhile, Hollywood is trying to reinvigorate interest in movie ownership with a cloud-based digital locker called Ultraviolet that allows viewing anytime from Internet-connected devices. The consortium that runs Ultraviolet, in an announcement at the Consumer Electronics Show in Las Vegas, said movie studios will offer hundreds of titles with the Ultraviolet option this year, up from a paltry, initial 19.
More than 750,000 households have registered with UltraViolet to create digital libraries since last fall’s launch, Mark Teitell, general manager of the Ultraviolet consortium, said in an interview. Photo Credit: Warner Bros. Pictures
Tech wrap: Huawei takes slimmest smartphone crown
Huawei, China’s largest maker of telecommunications gear, unveiled the “Ascend” smartphone, touting it as the slimmest on the market as it moves to boost its share on the global consumer market. Huawei unveiled the Ascend smartphones – available in black, white and pink – at the Consumer Electronics Show in Las Vegas. The 6.68-mm thin phone will be available in April 2012 in markets from North America, Europe to Asia and will cost roughly $400, but the final price has not been set, the company said.
AT&T announced plans to launch seven new smartphones and a tablet computer early this year for a new wireless network it is building. The product line-up will include a phone with a 16 megapixel camera from HTC using Microsoft software along with Microsoft-based smartphone from Nokia. AT&T said it will also sell three new high-speed smartphones from Samsung as well as a high-speed phone from Sony and Pantech. In an unusual pricing move, AT&T also announced that it would sell Pantech Element, a waterproof tablet based on Google Android software with a smartphone, the Pantech Burst, for a combined price of $249.
Olympus sued its current president and three ex-directors for several million dollars in compensation, sources told Reuters, as the company seeks to draw a line under one of the nation’s worst accounting scandals. The company filed suit against its president, Shuichi Takayama, with the Tokyo district court on Sunday, along with three former executives identified by investigators as having engineered or helped cover up a $1.7 billion fraud at the firm, the sources said.
Netflix launched in Britain and Ireland, taking on BSkyB’s premium drama and movies offerings and prompting Amazon-owned rival Lovefilm to offer a new cut-price service. Lovefilm, which has 2 million customers in its core British market, immediately announced Lovefilm Instant — an Internet streaming-only offer to undercut Netflix — in addition to its current offer that combines streaming and DVD rental by post.
Deutsche Telekom is overhauling its strategy for its U.S. wireless unit T-Mobile USA after AT&T last month dropped its planned $39 billion takeover of the unit, a person familiar with the strategy planning said, adding that no date had been set to unveil the plan but it would certainly not be before 2011 results are published on February 23. The company’s Chief Financial Officer Tim Hoettges said one of the first steps could be to sell and lease-back the company’s mobile phone masts.
A group of Chinese authors sued Apple for 11.9 million yuan ($1.9 million) in compensation for allegedly providing copyright-infringing books for download through its online store, Chinese financial magazine Caixin reported. The group of nine authors, under the mantle of the China Written Works Copyright Society (CWWCS), sued Apple in Beijing’s No. 2 Intermediate People’s Court for copyright infringement of 37 works, Caixin reported on Friday.
Cablevision also joins Time Warner Cable with HBO Go offer
After months of speculation we now know ad nauseum that cable markets of New York and Los Angeles will soon have HBO Go, HBO’s much acclaimed online video service. New York cable operator Cablevision said on Monday it will start offering HBO Go to its HBO subscribers in the next few months. Time Warner Cable, which dominates the New York City and Los Angeles markets, made a similar announcement late on Friday.
It’s worth repeating that HBO Go’s slick Web service and extensive library of exclusive TV shows and movies is only available to verified paying HBO cable subscribers and not as a standalone service. But even then it is significant for the strategy of HBO parent — Time Warner — to counter Netflix’s rise by offering a more flexible and mobile HBO service wherever and whenever subscribers want it.
The delays to offering the service to Time Warner Cable and Cablevision subscribers, was down to money (Quelle surprise!). While cable operators recognize the importance of offering additional value to programming packages by putting authenticated programming online — beyond the traditional TV package — they don’t always feel they need to pay too much extra over what they already pay.
At the end of the day of course it’s in the interest of both parties to come to terms or customers will indeed ‘cut the cord’ and go to Netflix to watch some of their favorite four-year old shows. But if Time Warner’s Jeff Bewkes has his way that won’t include even a five-year old “Entourage” or “True Blood”.
If Spotify fails, blame the Internet’s grim economics
If anyone has a serious beef with the music labels, it’s Michael Robertson. Robertson took MP3.com public in 1999, only to later to pay tens of millions of dollars to labels that sued the startup, claiming storing songs on servers infringed their copyrights. Fast forward to today: A new wave of music startups like Spotify, MOG and Rdio stream songs from servers with the labels’ blessings. It might all be above board now, but the labels are still bleeding the digital-music services dry.
That was Robertson’s claim in an detailed and elegant jeremiad against the big labels. He claims that Spotify and its peers will never make a profit because of secret, onerous terms that act as a financial straightjacket for the startups, snoop on their users’ data and border on collision. Others were quick to suggest that it’s the music-streaming services that are being stingy. After all, by some calculations, an artist could have a song streamed 4 million times on Spotify and make just $1,200
So who is right? Both. And that’s bad for everyone. Music labels, being greedy music labels, want a profit. Desperate for a piece of a music-streaming market that isn’t going away, they are asking for everything they can in the name of rewarding artists (and investors). But the digital music services like Spotify need a low subscription fee – usually $10 to $15 a month for an all-you-can-eat plan – to build a critical mass of subscribers.
Ten bucks a month for streaming music looks a bit steep if you compare it to Netflix’s $8 monthly fee for streaming video. Or it’s a great deal, if you compare it to, say, the $65 or more that longtime Comcast subscribers pay for cable. But that’s just the problem. Comcast is expensive because it’s cable, and Netflix is cheap because it’s the Internet. We say information wants to be free online, but what we really mean is we want it cheap.
So when we ask who is to blame for the dismal economics of digital music, we shouldn’t point to piracy. That’s a scapegoat that nobody but the labels takes seriously anymore. The true culprit lies elsewhere. It’s just the Internet doing what it does – breaking down the walls and removing the friction that for decades made it such a slog to find and discover new things to hear, to watch, to read.
And we love the Internet for this. We love having several millions songs on tap – playing them when we want, where we want. But the flip side is that this new cornucopia of on-demand music is upsetting the balance of supply and demand that was the standard for decades. The friction-free Internet has brought us so much more music to listen to. But it hasn’t increased the amount of money that people have to pay for it.
Good sir i beg to differ PIRACY indeed does make things more crappy for us the people if you believe it is not the culprit then i do not find this article relevant
Verizon, Netflix and those darn bloggers aka Reuters
Bear with us a minute while we toot our horn (again) and point to our story on Verizon’s plans to launch an online Netflix competitor next year. Needless to say, we were pleased to get it out there first, but it’s probably unsurprising that Verizon was not ready with a press release as it hammer out deals with programmers.
So it was amusing to hear Verizon Chief Executive Lowell McAdam as he tried to squirm his way around questions about his company’s plans during an interview at the UBS conference.
“I think the jury is out but I do think there is a place for over-the-top here and it will be part of our strategy,” said McAdam.
But here’s our favorite quote and no doubt was a reference to our story yesterday — which was eventually matched by the Wall Street Journal:
“There is lots of speculation about what we are going to do and what we are not going to do.That is all just speculation by people that like to write blogs.”
First of all, we love to write blogs here at Reuters. Secondly, we never report speculation (that’s why it’s called reporting).
McAdam confirmed, as we reported, that Verizon has been thinking about this for a while and looking at other options including Verizon’s recent tie-up with Comcast, Time Warner Cable and Bright House.
yes he is horrible I was wrongfully terminated and wrote him a letter and he did nothing about it , I had proof and emails that his Management team was lying about harassing another employee, they are going to let this man perjure himself under oath. He knows this, they blocked my letters to the board of directors i do have an open letter to corporate america ( the letter the board wll never see ) to show how Verizon bullys people and are unethical according to their own code of conduct
Tech wrap: Is intellectual property being used to restrict competition?
EU regulators investigating Apple and Samsung over their patents dispute are worried intellectual property rights may be unfairly used by some firms against their rivals, the EU antitrust chief said. “We need to look at this because IP rights can be used as a distortion of competition but we will need to look at the answers,” EU Competition Commissioner Joaquin Almunia told reporters. “Apple and Samsung is only one case where IP rights can be used as an instrument to restrict competition,” he said.
Netflix’s shares dropped as much as 7 percent after it warned of a loss for 2012, a move that prompted several Wall Street analysts to cut their price targets for the online video and DVD rental company. Netlfix said that it had recently lost a “significant” number of customers, who objected to Netflix’s decisions to raise its prices and split up its streaming and DVD business — an idea it later dropped. “If we do not reverse the negative consumer sentiment toward our brand, and if we continue to experience significant customer cancellations and a decline in subscriber additions, our results of operations including our cash flow will be adversely impacted,” Netflix said. Netflix shares ended the day down 5.4 percent at $70.45.
Groupon stock slumped on concern about increased competition, leaving shares of the largest daily deal company close to their $20 initial public offering price. LivingSocial, Groupon’s closest rival, announced plans on Monday to offer 20 deals with national merchants on the crucial Black Friday shopping period. Groupon shares ended the trading day down nearly 15 percent.
Samsung Electronics, the world’s top TV maker, is in last-stage talks with Google to roll out its Google TVs, the head of Samsung’s TV division told reporters. Samsung in January displayed a new Google TV-enabled Blu-ray player and companion box at the Consumer Electronics Show, but did not commercialize the offerings. The company said it plans to unveil its Google TV at an event next year without elaborating on the schedule.
Tech wrap: New Nook Color on the way?
Barnes & Noble sent out invites on Monday to a Nook-related event coming up on November 7. Most tech watchers expect the company to use the occasion to unveil a new version of its Android-powered Nook Color tablet e-reader, which could sport a better screen and upgraded hardware.
As CNet points out, the most anticipated question will be how much Barnes & Noble decides to charge for the new device. “With the Kindle Fire on sale at $199 (it ships November 15), there’s some pressure on B&N to come close to matching that price, though Amazon is allegedly losing money on each Fire it sells (our sources suggest the Fire currently costs around $220 to build). With that being the case, Barnes & Noble is more likely to come out with a faster, more powerful Nook Color that costs $249, though we wouldn’t be surprised to see it at $299,” writes David Carnoy.
Netflix has added a slew of new TV show episodes to its streaming video catalogue through an expanded licensing deal with ABC Television Group, a division of Disney. In addition to extending licensing for popular ABC shows such as “Lost” and “Grey’s Anatomy” that it already offers, Netflix added ABC’s “Switched at Birth,” “Alias” and episodes from past season of Disney Channel’s animated series “Kick Buttowski” to its streaming selection. Amazon.com also unveiled a content agreement with Disney on Monday that will let Amazon Prime subscribers stream shows from ABC studios, Disney Channel, ABC Family and Marvel.
A single hacker based in China launched a coordinated cyber attack earlier this year that compromised computer systems belonging to at least 48 chemical and defense companies, according to a new report from security firm Symantec. Computers belonging to these companies were infected with malicious software known as “PoisonIvy,” which was used to steal information such as design documents, formulas and details on manufacturing processes, Symantec told Reuters on Monday. The companies were not identified, but Symantec said the bulk of the infected machines were found in the U.S., Bangladesh and the UK and included some chemical companies that develop advanced materials used in military vehicles.
It’s no secret that Steve Jobs used to enjoy taking the occasional potshot at Microsoft co-founder and chairman Bill Gates. But Walter Isaacson’s new biography of the Apple co-founder, which was released shortly after he died earlier this month, reveals just how harsh Jobs could be in his criticism of Gates. In addition to calling Gates “unimaginative”, “weirdly flawed as a human being” and “fundamentally odd”, Isaacson quotes Jobs as saying “He just shamelessly ripped off other people’s ideas.” When ABC’s Christiane Amanpour brought up the comments in an interview last week, Gates dismissed the criticisms, saying “none of that bothers me at all.” He went on to praise Jobs in the interview. At one point, he even went so far as to claim he helped Jobs invent the Mac.
