OT - Dow plunges 1,175 - worst point decline in history

[MattTuck]

Originally Posted by tuscanyswe

hmm but that doesent take into account that those new customers will likely still pay the annual fee for quite a few years on average with no additional marketing cost to keep them doing so, no?

Interesting that you bring that up. Yes, this was a simplistic example to show that even some back of the envelope math can show causes for concern. First off, netflix doesn't provide information on churn. So we don't know how many actual "new" customers they got, just how many customers they added on a net basis. They could have lost 3M, and gained 10M to arrive at that 7M net subscriber add. So, without that information, it is hard to know how long those customers will stay.

However, it is safe to say that their expenses can be view broadly under two categories. Customer acquisition and customer retention. I'd say that once they acquire a customer, they still need to keep that customer happy (above some threshold level) or else they will cancel their subscription.

Let's say that 80% of their content spend in the quarter is for customer retention, and 20% for customer acquisition. So that is 1.4B spent (in addition to the marketing) to acquire customers, and those customers will take more than 1 year to pay off the marketing costs mentioned above, plus another year to pay off the customer acquisition piece of the content costs. So, it will take 2 years to pay off that piece of the costs that have been front loaded. And possibly more, because there are other costs (like technology) that they still create on top of the customer acquisition.

So, to answer your question, yes, of course the hope is that new customers eventually become recurring customers. But there is also a requirement, in the case of recurring customers, that the firm must spend to create new content and new technology and some continued marketing to keep them engaged.

Otherwise, existing subscribers would be stuck watching house of cards and old seasons of orange is the new black.

[tuscanyswe]

Originally Posted by MattTuck

Interesting that you bring that up. Yes, this was a simplistic example to show that even some back of the envelope math can show causes for concern. First off, netflix doesn't provide information on churn. So we don't know how many actual "new" customers they got, just how many customers they added on a net basis. They could have lost 3M, and gained 10M to arrive at that 7M net subscriber add. So, without that information, it is hard to know how long those customers will stay.

However, it is safe to say that their expenses can be view broadly under two categories. Customer acquisition and customer retention. I'd say that once they acquire a customer, they still need to keep that customer happy (above some threshold level) or else they will cancel their subscription.

Let's say that 80% of their content spend in the quarter is for customer retention, and 20% for customer acquisition. So that is 1.4B spent (in addition to the marketing) to acquire customers, and those customers will take more than 1 year to pay off the marketing costs mentioned above, plus another year to pay off the customer acquisition piece of the content costs. So, it will take 2 years to pay off that piece of the costs that have been front loaded. And possibly more, because there are other costs (like technology) that they still create on top of the customer acquisition.

So, to answer your question, yes, of course the hope is that new customers eventually become recurring customers. But there is also a requirement, in the case of recurring customers, that the firm must spend to create new content and new technology and some continued marketing to keep them engaged.

Otherwise, existing subscribers would be stuck watching house of cards and old seasons of orange is the new black.

Yes it becomes very hard to calculate these servicecompanies that relies heavily on subscriptions as its also very determined by current competition and or future competition. To many unknowns hence i feel like they likely have ppl who are far better at this then me (duh) yet they still want to push forward so there there must be good chance of reward down the line (obviously even ppl with the best intentions and skills makes misstakes tho)..

[fiamme red]

Originally Posted by tuscanyswe

Yes it becomes very hard to calculate these servicecompanies that relies heavily on subscriptions as its also very determined by current competition and or future competition. To many unknowns hence i feel like they likely have ppl who are far better at this then me (duh) yet they still want to push forward so there there must be good chance of reward down the line (obviously even ppl with the best intentions and skills makes misstakes tho)..

Did anyone really think that MoviePass would ever make money with its unlimited plan?

[tuscanyswe]

Originally Posted by fiamme red

Did anyone really think that MoviePass would ever make money with its unlimited plan?

Made me think of
https://www.youtube.com/watch?v=qM79_itR0Nc&t=8s

[Ozz]

Originally Posted by tuscanyswe

Yes it becomes very hard to calculate these servicecompanies that relies heavily on subscriptions as its also very determined by current competition and or future competition. To many unknowns hence i feel like they likely have ppl who are far better at this then me (duh) yet they still want to push forward so there there must be good chance of reward down the line (obviously even ppl with the best intentions and skills makes misstakes tho)..

I believe both Netflix and Amazon rivaling the other media companies / movie studios for their budgets for new content, and dwarfing them in regard to number of offerings, along with a "better" distribution channel.

The main question for me is how many subscribers do they expect to have when they peak? From that you can extrapolate revenues.

Netflix has about 130MM subscribers worldwide, and about half of those are in the United States. My guess is that they are shooting for around 500MM+ evenutually...at ~$15 per month = $7.5B in revenues just from subscriptions

[ColonelJLloyd]

Originally Posted by Ozz

Netflix has about 130MM subscribers worldwide, and about half of those are in the United States. My guess is that they are shooting for around 500MM+ evenutually...at ~$15 per month = $7.5B in revenues just from subscriptions

I'm pretty sure that the monthly subscription rate is and will be dependent on where the service is offered. i.e. It will be what the market will bear in that country/region. At some level the content is a sunk cost and $3/mo from a subscriber in a country where the median household income is $12,000 is better than the $0 Netflix would get from that household if the price were $15/mo.

[seanile]

Originally Posted by echappist

which companies actually give out decent dividends these days? any that yields 2.5%?

also, if you the companies are invested via a fund, is there one that you'd recommend (preferably on Schwab, Vanguard, or Fidelity)?

vanguard high yield dividend fund / vym

specific stock examples that i pay attention to personally:
amgn 2.6%
bud 5%
codi 8.2%
csco 2.9%
gild 3%
ibm 4.3%
jnj 2.6%
jpm 2.9%
mrk 2.7%
pg 3.5%
vz 4.5%
xom 4%

[jet sanchez]

I think I read somewhere that Amazon Prime members number at over a hundred million.

[Ozz]

Originally Posted by ColonelJLloyd

I'm pretty sure that the monthly subscription rate is and will be dependent on where the service is offered. i.e. It will be what the market will bear in that country/region. At some level the content is a sunk cost and $3/mo from a subscriber in a country where the median household income is $12,000 is better than the $0 Netflix would get from that household if the price were $15/mo.

oh, for sure...

personally, I have both streaming and still have the DVD delivery and am paying about $20 per month for Netflix

plus we have Amazon Prime.

I figure by the time they get to 500MM subscribers I will be paying $30+ per month....while someone in rural Peru will be paying about $5

(no disrespect to Peru intended....)

[ColonelJLloyd]

Originally Posted by Ozz

I figure by the time they get to 500MM subscribers I will be paying $30+ per month....while someone in rural Peru will be paying about $5

(no disrespect to Peru intended....)

Jinx. I'm not really sure why, but the specific country I was thinking of when I typed my response was Peru. All hail the purple potato.

I was honestly surprised to learn recently that Netflix still offers the DVD service. I became a customer back when that was the service, but I thought they had discontinued that.

[Ozz]

Originally Posted by ColonelJLloyd

Jinx. I'm not really sure why, but the specific country I was thinking of when I typed my response was Peru. All hail the purple potato.

I was honestly surprised to learn recently that Netflix still offers the DVD service. I became a customer back when that was the service, but I thought they had discontinued that.

Hah! too funny....

Yeah, the DVD service is a separate website now (single sign-on) and they make it a little hard to find, but it is still there. It just has more content of older movies that I like, so I keep it around.....

[echappist]

Originally Posted by seanile

vanguard high yield dividend fund / vym

specific stock examples that i pay attention to personally:
amgn 2.6%
bud 5%
codi 8.2%
csco 2.9%
gild 3%
ibm 4.3%
jnj 2.6%
jpm 2.9%
mrk 2.7%
pg 3.5%
vz 4.5%
xom 4%

thanks

[MattTuck]

Originally Posted by ColonelJLloyd

I'm pretty sure that the monthly subscription rate is and will be dependent on where the service is offered. i.e. It will be what the market will bear in that country/region. At some level the content is a sunk cost and $3/mo from a subscriber in a country where the median household income is $12,000 is better than the $0 Netflix would get from that household if the price were $15/mo.

Yes, but there are real costs (even if they do no advertising, and simply repackage their existing content for that market) in delivering their product to people's homes and phones. To say the $3/mo is better than $0, assumes that the marginal cost is zero. Colonel, I think you know this, and were simply making a larger point about the potential addressable market with their existing content base. But for those who are reading this thread to learn, figured I'd be more clear.

And I'd say that existing content is a sunk cost, but netflix is currently producing lots of non-English programming for their different global markets. So going forward, it is not clear to me that consumers will be satisfied with a static library of content. Netflix (as opposed to being a technology platform, essentially a business that takes a cut of the action for matching paying viewers with content producers) has now gotten on the treadmill of producing content. I don't think it is obvious yet what the end game is for that strategic shift. (They made that shift because the content producers wanted a bigger percent of the action, and netflix wanted more negotiating leverage, and to not be at the whim of studios.)

[Ozz]

Originally Posted by MattTuck

....I don't think it is obvious yet what the end game is for that strategic shift. ...

Vertically integrated multinational media/entertainment company....trying to be the Amazon of entertainment...our course, Amazon is also trying to be the Amazon of entertainment.

If I were MGM, Disney, Warner, Universal, HBO, NBC, CBS, ABC, et al, I would be worried....

[ColonelJLloyd]

Originally Posted by MattTuck

So going forward, it is not clear to me that consumers will be satisfied with a static library of content.

I'm not suggesting that Netflix will not need to produce content and at some point rely on a static catalog.

You seem to be asserting that they are pursuing a business model that perpetually calls for costs that exceed revenues based on the results of some recent period. What I'm saying is it's possible. . just maybe that that is not the case. I'm not investing in Netflix (that I'm aware of), but I'm not going to assume they don't have a clearly defined path to profitability that is achievable.

More broadly, my point was that I don't think it's apt to lump Netflix in with social media companies.