Dreamworks deal - "gamechanger" for the studios but very very bad for NFLX.
Here is the line from the NY TIMES piece that let me know its over for NFLX: "The Netflix accord, which analysts estimate is worth $30 million per picture to DreamWorks over an unspecified period of years, is billed by the companies as the first time a major Hollywood supplier has chosen Web streaming over pay television." Excuse, me....was that $30 mill PER FILM??? The old starz deal was 30m for the whole catalog!! This suggests that NFLX is either 1) going to have to change its pricing structure again or 2) this is going to be a financial disaster. Assuming $8 dollar streaming subscription ($96 year), each film (at $30m) would have to independently generate 312,000 new subscribers just to break even for the flix. That strikes me as an ABSURD bet.
This also strikes me as a desperate deal to change the news and to get at least a single person in America to say "Hey I want to subscribe to Netflix." (when was the last time you heard ANYONE say that? All I hear about are cancels) At worst, they need people to feel like they have a reason not to cancel.
The financials of this deal are just terrible. But my guess is that Netflix management already knows that they are so deep in the hole on their other content deals that adding another unaffordable deal (and probably keeping it off-balance sheet) is like a adding a second mortgage when you already can;t afford the first (i.e. if you;re going to default, does it matter if you have one creditor or two).
So for all of you predicting an instant 10-20% bounce, don;t be surprised if it reverses real fast for the reasons above. Once a momo is popped, lots of investors become a lot more aware of the gray, even when yahoo board members are insistent that there is only silver lining.
The one additional thought that did occur to me is that perhaps this deal signifies that, in fact, NFLX end game really is to be acquired by the likes of Amazon or Goog.
Entering deals you can't possibly expect to be profitable only makes sense if you think that a big "turn-key" content library is desired by a potential suitor irrespective of cost.
Think of the housing bubble in 2006. People were investing in all sorts of upgrades they couldn't afford (in their otherwise unaffordable houses) for the sole reason of boosting the purchase price on the flip. If NFLX thinks the only way they can get the ludicrously proposed 50% premium for their streaming business, they need to look JUST like the acquiring party wants them to look.
There is no rational explanation for payig $30MM per picture, especially for pictures unmade and unproven. Netflix is sticking to a losing model that will eventually ruin it. It's no longer a monopoly. More competition means increased content costs and subs not growing at forecasted levels or maybe even losing subs. Amazon can give additional savings to their customers that Neflix can't offer. In content's migration to digital media, one thing is certain: content is king, not the businses that merely distributes the content on various platforms. Comcast buying NBC/Universal is genius. Netflix will ultimately lose if it keeps this model.