Only two stories much worth considering today…

Ms Vachon Regrets… – I dont see much of anything wrong with Christine Vachon’s State of Film address at SFIFF.  I would say that she suffers a little from indieitis, which is what turns up, for instance, in her stated disinterest in discussing theatrical exhibition. Why? Because theatrical as the primary revenue stream for true indie (not studio dependents) is already dead.  Why would she pine for the dead when she’s gotta lotta living to do?  I am amongst those who would like to see theatrical taken seriously, for both aesthetic and financial reasons. But she’s already dealing with an indie universe where DVD and theatrical are not generating enough… so she has to look to streaming as a realistic long-game player.  I would argue that she’s getting in bed with grandma and not thinking about her big eyes, big nose, and really big teeth.  The maturation of the digital world for filmed entertainment is going to hurt a lot of people in a big way. But Vachon is a smart person and a survivor.  And for now, for her, she’s absolutely right. And people shouting down a truth teller is more than a little pathetic.

Netflix YoYo – Nexflix beat their quarterly projections, but still lost on the stock exchange.  Why?  I think because Wall Street is figuring it out.  Netflix has done great building out the streaming future, but perception of what the service can be has been so wildly exaggerated by the media thanks to a non-competitive market, you can feel the slow, steady movement towards reality coming.  Those of us who saw Blockbuster’s future 15 years ago know that there is a business in Netflix… just not the exclusive, ubiquitous business currently perceived.  Even the anti-Netflix rhetoric in the industry is wildly over the top.  Netflix doesn’t have ALL the content, has never had Most Of the content and will never be everything to everyone.  But streaming and VOD are so new that perspective has been lost.

Here is a little Netflix math… Quarter 1, 2011 compared to Q1 2010 saw a $28m rise in net income.  But with gross revenues up by $225 million, the return is not all that impressive. That’s an increase from a 6.5% quarterly net on revenues to a 8.3% net on revenues while the company has grown overall by more than 40%.  And that is without much competition yet… and with some cheap deals, like Starz, still holding as a market advantage without being a greater drain on the company’s bottom line.  Streaming content has gone from $16m a month last year to $64m a month in this last quarter.  And the number is only going up.  Costs for DVDs never hit $15m a month.  

I estimate that Netflix would have to add 3.5-4.5 million new paying subscribers to cover the cost of a new Starz deal with Sony and Disney fully loaded.  And what is the cost of not doing a Starz deal?  What is the cost of competition?  Can Netflix afford to do an HBO Go deal?  

I can’t help but to be amazed by the massive change Netflix has made in its business model.  But it feels like a bubble that just can’t keep growing, yet HAS to keep growing to sustain its position in an increasingly crowded market. 

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