It is amazing how seemingly smart business types can mischaracterize the "off balance sheet" obligation table in NFLX 8-k.
First off, the table showing $2.4 bil in obligations is for future streaming content. It cannot be for past or present streaming content as it defies simple accounting rules. If you sell a product today, its cost must be accounted for today. It hits the income statement as bills paid or an accounts payable. Why this escapes the experts is baffling.
Secondly, I think the future content replaces the content that is already on the balance sheet. It looks like the hit is $600 mil per year. NFLX is now spending $1.3 bil per year on content. Thus the amount is not so scary.
The recent price hike has not been factored in. If 12 mil DVD subscribers pay an extra $6 per month, it totals $864 mil per year. If subs increase, it further brings in cash.
THE NUMBERS and estimated payment dates everyone's referring to are contained in Note 9 of the July 2011 10-Q, printed pg 11, here: http://ir.netflix.com/sec.cfm?DocType=Quarterly&Year=&FormatFilter=. It's also Note 9 in April's 10-Q. Here's a cut and paste of the expected timing of payments as of June 30, 2011 for these commitments is as follows:
Less than one year
Due after one year and through 3 years
Due after 3 years and through 5 years
Due after 5 years
Total streaming content obligations
The Note's effect is unclear to me: are these expense numbers minimums or estimates? The numbers went up between 1Q's Note 9 and 2Q's Note 9 and are higher yet in Credit Suisse's Sept 29 research report -- does that mean these numbers are climbing minimums, or might they be adjusted downward later if, say, fewer NFLX users watch the expanded content? Basically, does incurring these expenses provide NFLX with any additional revenue to offset them, or are these expenses just being incurred to make their library bigger and hoping that the bigger (presumably cooler) library attracts enough new clients to offset its cost of acquisition? What happens if the expanding library doesn't attract as many new clients as expected?
What agreements are you referring to? They don't disclose details of the content deals.
The 10-Q shows when the off sheet content costs are coming due.
Can you direct me to the actual text of the agreement? Or, might you know the date and/or the type of SEC filing that disclosed its provisions? 10-K, 10-Q and 8-K are all candidates, but I've found Netflix's filings section to be pretty non user friendly. Can you help me find it? Thanks, I know it's a hassle; I wouldn't keep asking if I wasn't considering a purchase in the morning. http://ir.netflix.com/sec.cfm?DocType=&Year=&FormatFilter=
This is something to think about... The Price Increase has indeed Hurt the Company. In fact I received an Email stating they will now keep streaming and DVD Rental under 1 roof but will keep the price increase. Well this is a no brainer here. No I will not pay the increase and will use another service as the content of streaming is not good and why bother with an Increase in rental of DVD's when I can do better. Mark my words NFLX gave everything away when they tried to bump prices with less content. Sub will continue to drop. Watch what happens in Feb and March. Seems that the 50's could be had soon.
If you can afford to buy this stock for gambling, then you can afford $7.99 in a months time. I spend $25 a day just on lunch. If you can afford to put 2 gallon of gas in your car or own a tv, I would assume you can afford $7.99 to watch the biggest content provider on the market. tired of hearing you cry babies..
First, thanks for your excellent post. I don't own nflx, but I'm considering buying today, but a bit earlier I heard and was confused by that cnbc host's mention of this $2.4 billion obligation. Could I trouble you to explain that a bit more fully? For example who is the obligation to and what do they provide? You also mention that the $600 million per yr cost would replace the current cost of $1.2 billion per yr. Does that mean that this agreement might actually represent a decrease in nflx's cost to provide content? again, thanks for your insight.
I don't think streaming content costs are going down in the future. My point is that the $2.4 bil obligation is not for products already sold. The analysts have been touting this amount as a big balloon payment due in the next five years. No, is just ordinary business expense for streaming products yet to be bought and sold.
The key to any streaming business is to get the divisor as large as possible. This means many subs. Netflix has the head start on everyone.
I consider the Quickster event as a New Coke event. Give it a few months and it will settle down. But Netflix (Hastings) has got to understand that you don't fool with a brand based on what you want. The customers also own the brand.
They have delayed putting content costs on the books in a timely, appropriate manner to create the illusion of earnings. Their business model will not net any profit barring a stunning increase in subs. Now that the sub growth has stalled, if not reversed, the ponzi is totally screwed and they will be belly up shortly.
ffs the insiders have been milking this fraud for years, I believe the number is into the billions now. Outrageous criminality courtesy of Wall Street.