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Woke up this morning to the little update marker on my Priv.

It's February 1st, and BlackBerry did commit to regular, monthly updates of the system software.  Google does so too, with their unlocked Nexus phones.

BlackBerry pushed it first.  It's a small update, only 17MB, and it's updating now - there's no release notes to show exactly what was changed, and it's too small to be Marshmallow (by far), but I do like this pattern of support and updates being pushed out on a regular basis.

Keeping promises?  How nice.

In other news BlackBerry increased their stock buyback -- while their stock was getting hammered.  That's the right to way to do it, and the way nobody else ever does.  The whole point is to buy low, not buy high.  Witness Apple, which bought back a crap-ton of stock at $130 with analysts claiming that it was a "good move" because they'd spend $1.50 a share in interest expense but the stock paid somewhat over $2 in dividends, so heh, it all looks good, right?

Sure it does -- when you take a $30 capital loss how long does it take to make that back at 70 cents/year, and by the way, will interest rates remain that low for that long?

Probably not, and if not...


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Remember folks, with negative operating cash flow Netflix has only been able to "fund" their "content" by issuing and more and more debt.

What happens when you can't do that at a commercially-reasonable rate any more?

Yes, the stock is down 9% right now as perhaps people are waking up to this "little problem."

It'll crash by 90% -- if it doesn't go to zero -- if they wind up unable to fund their little content-game with ever-increasing debt issuance given that their operating cash flow is negative $500 million (!)

Psst: There's something particularly stupid about bidding up stock in a company that cannot manage to put up a positive operating cash flow number, especially when you manage to cost-shift nearly your ENTIRE delivery expense onto the backs of other people.  Here's looking at you, Netflix cheerleaders -- and holders.

Oh, incidentally, much of the so-called "miracle" of increasing EPS was driven by the same debt-issue game (e.g. to buy back stock) - as I've repeatedly noted the problem with this is that the carrying costs are then permanent (since nobody ever pays down said debt) and further if and when that catches up with you the multiplication of losses is exactly the same as that on the so-called "earnings."

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You knew it would happen eventually.

"Multiculturalism", which is really another name for either monoculturalism or worse, non-culturalism, would move from the realm of the political to that of business.

Nowhere has the tailoring of cultural preferences been more important than in media.  Movies and music, in particular, have always been licensed in "zones"; this is why your DVD has a "Region 1" code on the back.  While there is a difference between NTSC and PAL at the video output level, the real issue is one of licensing -- Region 1 will play only on a Region 1 player, and that is set by where the player was sold.

Netflix seems to think it can "break" this model.


Netflix’s New Year’s resolution for 2016 was to become truly global, and it pretty much fulfilled the goal before the year was even a week old. As Reed Hastings, the company’s chief executive, was giving his keynote address at CES, Netflix flipped the switch on 130 countries. Netflix is now worldwide, with China being the only notable exception. 

It will also be universal. Instead of tailoring its service for each country, Netflix aspires to become a single Internet-based TV network that's identical for viewers in Ireland, Israel, Iran or Indonesia. It’s a bold move based on two very optimistic assumptions: that Netflix can re-order the way media companies dole out rights to their television shows and movies, and that its algorithms are more powerful than the cultural differences between humans living in different countries. 

I'll make a nice prediction here: Both will fail.

The first is that Netflix is unlikely to manage to force media companies to do anything.  This, more than anything else, is arguably why they're developing their own content -- they really have little choice because their basic business model has always been cost avoidance.

In the earlier years this was in no small part due to the studios giving Netflix a content license that was radically underpriced compared to where it should have gone had they believed in the story.  Hastings might like to crow about this but the problem is that such "advantages" always end and that's exactly what's happening.  As those deals expire and must be renewed the studios now have far more data to evaluate in terms of what sort of price they should demand and that price is escalating rapidly.

Netflix has a huge problem on their hands with this because if their attraction to people is predicated on specific movies and serials being available and they disappear so may their viewers.  The studios have suddenly popped up with the "whip hand" in that regard.

Creating your own content sounds like a solution to this, but is it really?  You have to amortize it over the entire viewing base, obviously.  The only way this works, so it appears from the studio systems, is if you create for a given audience and cultural group, and then of course you license it in accordance with that.

What happens when you start trying to appeal to everyone?

Netflix believes they'll be able to find that magic formula.

I don't think so.  I believe they will instead wind up with a bunch of flops that appeal to nobody instead, never mind that the margins are very different between selling rights that have no maintenance and creation cost and creating from scratch, which makes no economic sense unless you can do it cheaper than the other guys.

For a company trading at ~300x earnings there is no room for flops; one could easily cut the stock in half, and should the usual ratio of studio attempts to successes play out the price of Netflix stock should trade more akin to Lions Gate Entertainment, which implies a fall in their stock price of some 90%.

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