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Whitney Tilson: Why We Covered Our Netflix Short

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Re: Whitney Tilson: Why We Covered Our Netflix Short

#21

Pretty sure the studios, once Netflix is all/mostly streaming will simply change the licensing costs to pilfer most of the profit, why wouldn't they? Without their content Netflix has nothing. Before they were insulated from this via the First Sale Doctorine and distribution through the mail. If they go all streaming the content producers can change licensing costs (already happening) and there is almost no barrier t…

But without Netflix, how valuable is their content?

They seem to have survived pre-NetFlix, and there are Netflix alternatives...so I would say 'pretty valuable'.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#22

Pretty sure the studios, once Netflix is all/mostly streaming will simply change the licensing costs to pilfer most of the profit, why wouldn't they? Without their content Netflix has nothing. Before they were insulated from this via the First Sale Doctorine and distribution through the mail. If they go all streaming the content producers can change licensing costs (already happening) and there is almost no barrier t…

there is almost no barrier to entry Yes, anyone can stream videos. But not everyone can buy the rights, which are sold in exclusive windows. Every title is only licensed to one entity in each window. This system was designed for pay-TV channels that wanted exclusive rights, and the studios found that it was a good way to maximize revenue. So after a movie leaves the theaters, there are a series of these licensing win…

>Buying content within a window is essentially like an auction. The highest bidder wins. It's possible to enter the market, but to do so you actually need a lot of capital to bid and win content.

I think Amazon has sufficient capital to go to auction, also, in general, capital comes 'cheap', if someone has a business plan with a reasonable shot at success they can get VC money. If your expectation that a barrier to entry is purely capital costs, well...you better hope no investors want to back a competitor, there is plenty of money out there.

>Reed publicly stated that a major goal in the future is to pay studios more for content. And that's only fair as we increase the number of viewers.

Well, from a business perspective fairness isn't what matters, he should strive to retain as much of the 'pie' for Netflix as possible. His concession that he 'wants' to pay content producers more seems like PR, more likely he has no choice. It is good and fine to say you want studios to make more money on content, but I don't think history has shown either the movie or music industry care terribly much about how much profit their partners make, and they can drain any profit by increasing licensing costs anytime they want no? The more successful you are in streaming it seems the more you are exposed to this risk.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#23

Earlier quoted context omitted.

Would that likely be a general problem with CDN's or is it specific to just Netflix?

Probably a general problem. They (of course, depends on the network) use the DNS system to determine "where" you are to provide a node closer to you. However, you probably will only notice it on things like video where latency can make such a large difference.

I suspect the best way to tell is to run some tests. Shouldn't be that hard to do.

(though, I wonder if youtube suffers when google dns is used. I could see arguments both ways)

Re: Whitney Tilson: Why We Covered Our Netflix Short

#24
post #11

I think the most important part of the article is the quote at then end saying that just because they aren't interested in buying it doesn't make it a good short. The market can stay irrational longer than you can stay solvent and all that. 75x trailing earnings in the current economic environments SEEMS expensive to me. I'd be willing to bet (but not with real money) that it will be cheaper in 12 months. Of course,…

75x trailing earnings in the current economic environments SEEMS expensive to me. It seems the same to me as well, but markets seem to disagree. The riskier the bet, the more willing today's market seems to be willing to accept it.

Netflix seemed expensive to me in the $120+/share range. Even in the $100/share range, it wasn't where I was going to buy.

The market isn't rational, and it's going to be irrational with a lot more force than I can muster.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#25

I think the most important part of the article is the quote at then end saying that just because they aren't interested in buying it doesn't make it a good short. The market can stay irrational longer than you can stay solvent and all that. 75x trailing earnings in the current economic environments SEEMS expensive to me. I'd be willing to bet (but not with real money) that it will be cheaper in 12 months. Of course,…

If you assume 30% growth for 5 years, dropping to 8% after that with a discount rate of 11%, then the $3 EPS implies a price target of $260. DCF derived targets imply some crazy valuations in high growth situations...

That said I wouldn't buy NFLX either. But I wouldn't want to be short when 1/3 of the float is. If AMZN buys them out that would be the mother of all squeezes.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#26

I think the most important part of the article is the quote at then end saying that just because they aren't interested in buying it doesn't make it a good short. The market can stay irrational longer than you can stay solvent and all that. 75x trailing earnings in the current economic environments SEEMS expensive to me. I'd be willing to bet (but not with real money) that it will be cheaper in 12 months. Of course,…

This is one of the most important things that those "if you're so sure Apple/Gold/etc is overvalued why don't you short it?" people ignore.

Maintaining a short position is expensive. And even if you can afford it, holding it for too long can kill any upside you get when it finally does collapse. I can say that Gold is overvalued but I won't short it, and be perfectly consistent in saying that, because I admit that I have no idea how long it'll take for the bubble to pop.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#27

Earlier quoted context omitted.

Would that likely be a general problem with CDN's or is it specific to just Netflix?

Probably a general problem. They (of course, depends on the network) use the DNS system to determine "where" you are to provide a node closer to you. However, you probably will only notice it on things like video where latency can make such a large difference.

While that's generally true for basic CDN backed services like image fills from akamai, DNS geolocation isn't the norm for more complex applications. Netflix specifically doesn't use dns to push you to a specific pop, you first talk to a set of central authentication/drm servers who in addition to giving you your ticket/key also direct you to the video CDN POP they choose for you. The fact that Apple TV made the news because their service was/is broken by anycast DNS servers is just a case of bad engineering and not the industry norm.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#28
post #16

Earlier quoted context omitted.

Don't use Google's DNS or Open DNS. That screws with the CDN endpoint you are given and drastically hurts performance.

If that's so, what do you do if your ISP's DNS is terrible? Try to find a better one that's still geographically close?

Cache.

http://www.thekelleys.org.uk/dnsmasq/doc.html

Re: Whitney Tilson: Why We Covered Our Netflix Short

#29
post #26

I think the most important part of the article is the quote at then end saying that just because they aren't interested in buying it doesn't make it a good short. The market can stay irrational longer than you can stay solvent and all that. 75x trailing earnings in the current economic environments SEEMS expensive to me. I'd be willing to bet (but not with real money) that it will be cheaper in 12 months. Of course,…

This is one of the most important things that those "if you're so sure Apple/Gold/etc is overvalued why don't you short it?" people ignore. Maintaining a short position is expensive . And even if you can afford it, holding it for too long can kill any upside you get when it finally does collapse. I can say that Gold is overvalued but I won't short it, and be perfectly consistent in saying that, because I admit that I…

>Maintaining a short position is expensive

Short positions on companies like Netflix should be initiated using capped-loss derivatives instead of assuming the unlimited risk of selling the company's stock short.

Buying a long-dated put option is often the best way to short something, assuming you have conviction.

Re: Whitney Tilson: Why We Covered Our Netflix Short

#30

Sounds like Hastings charmed them. I'm a Netflix streaming subscriber and even though it's so cheap - I'm considering canceling because they don't bring enough new content online for me to get value from the service.

You really can't get one movie's worth of value out of it per month, even with the extensive catalog of older stuff they have? Cause that's all you really need to get out of it to make it worthwhile...

I'm finding Netflix streaming over the $99 AppleTV to be an incredibly better deal than paying $70-$80 a month for digital cable.

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