Google vs. Amazon – Homefront.

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This could be a repeat of VHS vs. Betamax. 

  • Google is adding functionality to allow Google Assistant to compete more directly with Amazon’s Alexa, but what it really needs is to offer love and support to developers of smart home products.
  • Google’s failure to do this was visible on every stand at CES where a smart home product was to be found as they all will work with Amazon Alexa
  • Only a very tiny fraction will work with Google Assistant.
  • Google’s shopping functionality has involved singing a up a series of retailers such as Costco, PetSmart and Target to link their online ordering systems with Google Home such that a similar (to Amazon) shopping experience can be offered through the device.
  • Measuring up to Amazon in this category is going to be tough because Amazon has one system through which millions of products are available globally, whereas Google will have to sign up lots of retailers in every locality where it aims to have this service available.
  • However, when it comes to almost all of the other features, Google Assistant is capable of offering a vastly superior user performance than Amazon Alexa.
  • This is because the AI that powers Google Assistant is top of the class while Alexa’s is second rate at best.
  • Furthermore, the Google Home speaker is $50 cheaper than the Amazon Echo and in my opinion, a nicer looking product.
  • However, where Google falls over is home automation and here Amazon is currently ruling the roost.
  • RFM research has found that device developers receive plenty of love and support from Amazon which combined with the fact that there are now 8m devices in the hands of users drives them to make their products work with Alexa right from launch.
  • This is despite the fact that using many of these products with Amazon Alexa is a frustrating and fragmented experience.
  • A good example of this is Plex, which recently enabled an Alexa skill so that the user could control the Plex player using Alexa.
  • However, because Alexa lacks the brains to make service intuitive, the user experience is so bad that one tries to control Plex with Alexa once and quickly returns to the remote control.
  • In contrast to Amazon, many developers find that Google is difficult to work with and some did not even know who to at Google to call to enable Google Home with their product.
  • This is the opportunity for Google Home even though it only has around 0.5m devices in the market today.
  • I think Google needs to ramp up its love and support for developers immediately and thinking that they will just turn up at Google i/o is not nearly good enough.
  • There is a whole segment (home) of the digital ecosystem up for grabs right now and I still maintain that this is Google’s to lose.
  • However, at the moment it is Amazon that is blazing the trail and if Alexa makes it into the majority of households before Google pulls its finger out then the game will, in all probability, already be lost.
  • This will not be the first time that an inferior product will have won the day and I think there are valuable lessons that Google can learn from studying this history.
  • From an investment perspective, I continue to not really like either Alphabet or Amazon preferring Baidu, Tencent and Microsoft.

Fitbit – Boredom bites.

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User indifference likely to drive further estimate cuts in 2017.

  • Fitbit issued a horrible profit warning as users appear to be becoming bored with fitness tracking despite Fitbit’s efforts to drive engagement through the ecosystem.
  • Q4 16A revenues / Adj.EPS will be $572m – $580m / LOSS$0.51 – LOSS$0.56 compared to previous guidance of $725m – $750m / $0.14 – $0.18.
  • The new revenue estimate is 22% below where the company thought demand would be in Q4 16 and 27% below the consensus estimate of $736m.
  • The company also took the knife to its 2017 estimates with revenues / Adj-EPS of $1.5bn – $1.7bn / LOSS$0.22 – LOSS$0.44 compared with consensus at $2.38bn / $0.43.
  • The company blamed market softness for the shortfall and promised a recovery in H2 2017 but only because the year over year comparisons are much easier given the awful H2 2016 the company has had.
  • I think that Fitbit has three major problems:
    • First: It’s sensors are not accurate enough to be of any use beyond recreational health.
    • I believe that all health trackers suffer from this problem and until these devices are far more accurate, they will all have difficulty in expanding into the huge opportunity represented by health monitoring.
    • Phillips makes some bold claims in this area but I have yet to see hard evidence that its products are meaningfully more accurate than anyone else’s.
    • Second: The issue with wearables being a solution looking for a problem (see here) appears to be getting worse.
    • This is because the health tracking that these devices offer is simply not good enough and hence many devices end up gathering dust in a drawer after a couple of months.
    • Fitbit does far better than most but with only 23.2m active users of its devices, there are still a large number of devices out there that are no longer on the wrists of users.
    • Furthermore, from an ecosystem perspective, Fitbit is still miles adrift of the 100m active users that RFM estimates are needed for an ecosystem to hit critical mass.
    • Third: Fitbit is being eroded from both ends with Apple Watch at the top of the market and cheap Chinese health trackers at the bottom.
    • This issue is exacerbated by the fact that Fitbit has offered no real innovation in health tracking for some considerable time which has meant that the cheaper Chinese versions are just as good in terms of generating raw data.
    • If Fitbit was able to reliably track calorie consumption, blood pressure or blood sugar, then this would give it something with which to fight back against commoditisation, but of this there is no sign.
  • On top of the warning, Fitbit has also pledged to cut $200m of OPEX in 2017 with way less than 10% of this coming from headcount.
  • This means that certain aspects of sales and marketing and some research and development projects are also going to be cut.
  • This will make it even harder for Fitbit to come up with a winning innovation with which to restore its gross margins.
  • Consequently, the outlook for Fitbit in 2017 looks very difficult and I suspect that it may be taking the knife to its estimates yet again in 2017.
  • Just like GoPro, Fitbit remains one to be assiduously avoided in 2017 as both have further to fall leaving them open for acquisition (see here).

Sonos – Sounds of sameness pt. II

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I do not see the boldness required to save Sonos 

  • Sonos has announced a change in leadership with its 14 year veteran CEO / founder John MacFarlane handing over the reigns to President Patrick Spence who joined Sonos in 2012 as COO.
  • Patrick Spence was previously with BlackBerry in a sales and marketing role.
  • Although Sonos reportedly has had a reasonable end to 2016, it remains in a strategic quandary that I think will take a very bold move to fix.
  • The problem is essentially that as it now supports the major music streaming services, it has relinquished a large part of its long term differentiation.
  • Sonos’ strategy to date has been to lock its users into its ecosystem and only allowing them to use popular services such as Spotify, Amazon and so on via its own app.
  • The idea was to create a compelling user experience such that users would choose a Sonos even if something of equivalent quality was available at the same price point.
  • Unfortunately, this is where it has all come unstuck as Sonos’ ecosystem delivers a frustrating, buggy and substandard user experience that I think users would not use if they had a choice.
  • By enabling both Spotify Connect and Amazon Echo, Sonos has removed the requirement for users to use its software which I think is a sign that it is giving up on trying to create user preference around an ecosystem.
  • Because Amazon Echo and Spotify Connect are keen to work with any speaker on the market, Sonos’ differentiation now becomes: audio quality, design and its multi-room function.
  • Hence, I see Sonos’ only chance is to either
    • First: invest in cool new hardware features and stay ahead of its competition to maintain its price premium or
    • Second: to go for volume and gain scale advantages by significantly outselling its rivals.
  • Given Sonos’ current position, I think that both of these options will require a bold strategic move from Sonos that would probably have most chance of success if led by an outsider.
  • Hence, I fear that Sonos’ outlook remains rather bleak and hence it may end up being acquired.
  • I see it making a good tuck-in acquisition for any company trying to create a cross device ecosystem as its brand is very well known.
  • I see Samsung, Apple, Sony and Amazon all as potential acquirers.

CES Day 1/2 – Winners and losers.

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Winners

Amazon.

  • In my mind, the star of CES 2017 is Amazon which is beginning to show signs of doing to Google what VHS did to Betamax.
  • Betamax was a vastly superior technology but a slick marketing campaign by JVC ensured that VHS was adopted and Betamax struggled to remain relevant.
  • These battles are now fought online and in the developer community and here it is currently Amazon all the way.
  • On the show floor everyone who is developing a device that goes anywhere near the home is ensuring that it works with Amazon’s Echo.
  • Google Home has barely put in an appearance.
  • Furthermore, Huawei’s Mate 9 has included Amazon’s digital assistant Alexa because Google’s Assistant is currently only available on Pixel.
  • This is a huge and lucky win for Amazon because as it has managed to kick start the virtuous circle where more developers mean more devices sold which mean more developers and so on.
  • The issue is that when it comes to the digital assistant itself, Alexa is far too dim to be of any real use (see here) but if users adopt it for a hub in the smart home, Amazon will then have time and data to improve.
  • Using Echo as a smart home controller could easily evolve into other areas as the device will already be present in the home which could really hurt the appeal of Google Assistant in the long term.

NVIDIA.

  • NVIDIA is the word on everybody’s lips and despite a somewhat lack lustre set of demos, the stand has been heaving every time I have walked past it.
  • Most attention is being paid to what NVIDIA is doing in automotive and how it could represent a challenge to Intel in the server space.
  • Its key proposition is to use its parallel graphics chipset designs in other tasks where parallel processing is an advantage such as artificial intelligence and in servers and data centres.
  • NVIDIA has neatly combined the two hot potatoes in the tech industry (AI and automotive) which has resulted in a disproportionate amount of interest being generated.
  • NVIDA has gained great momentum from CES but whether it can keep that going through 2017 is a valid question.

HERE.

  • HERE is one of the few that has shown ground breaking progress over the last few days.
  • The addition of Tencent, NavInfo and Intel as partners (see here) has continued with addition of Nvidia and Mobileye as partners.
  • For HERE, the addition of Mobileye is a particular endorsement of its strategy as only 12 months ago, Mobileye was adamant that autonomous driving did not require a map.
  • This embarrassing about-face gives HERE’s credibility another meaningful boost.
  • HERE is now a credible threat to Google Maps but the time has come to turn the ink on the partnership agreements into action.

Losers

Google.

  • Google is the big loser when considering the traction that Amazon Echo is generating among the smart device companies.
  • This is because Google Home should be a superior product when compared to Echo because Google Assistant is much smarter with better functionality than Echo.
  • However, early users of Google Home complain of poor voice recognition which appears to be preventing the superior intelligence that underpins the user experience from shining through.
  • Combine this with the fact that on all the IoT stands, there is barely a Google Home device to be seen and one starts to wonder whether Google Home will make it at all.
  • This is a sign that Google’s execution on Google Home (and potentially Pixel) is not going as well as hoped.
  • I am increasingly worried that Google will squander the opportunity to both capitalise on the market that Amazon has opened for it as well as benefit from Samsung’s misfortunes.

LeEco.

  • While LeEco has a good presence at CES with a range of devices and two cars, it has a real PR problem.
  • Chatter in and around the stand is all centred around the financial difficulties that LeEco is experiencing with very little focus attention being paid to the products or the proposition.
  • For a consumer device company this is a massive problem as it can quickly lead to a death spiral of confidence.
  • If people think that the company’s future is doubt, then they won’t buy the products which, in turn, will increase financial pressure, bad news flow and so on.
  • LeEco needs to break this cycle before it is too late and I still think that the only way out is for the company to ditch both its own car as well as that of Faraday Future (see here).

Apple.

  • Apple does not publicly attend trade shows but the degree to which it has been absent in the last few days is striking.
  • No one is discussing Apple on the stands and I have been greatly surprised with the degree with which two of its long-term initiative appear to be being ignored.
  • I have long believed that Apple’s long-term strategy to maintain its differentiation (and its margins) is to a large part predicated on its ability to offer a great experience around the home and in health.
  • This is where HealthKit and HomeKit (see here) come in but to work, device makers need to ensure that their devices are fully interoperable with this software.
  • Of the entire multitude of devices that I have seen in the last two days these two words were not mentioned once.
  • While Apple remains the strongest ecosystem, it needs to ensure that it continues to be the place where home and health devices come together because that is where the real value is to be had.
  • Amazon is showing up Apple just as it is Google.

CES Day 0 – Square one.

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IoT – everywhere and nowhere.

  • With the press cycle already revved-up well before the official opening of CES, almost everything that is on show is a known device, tool, utensil or appliance that can now work with a smartphone.
  • However, this is pretty much what we saw last year and it feels like the electronics industry remains at square one waiting for the next revolution that will drive it forward.
  • The smartphone remains firmly at the centre with almost every innovation being displayed involving a device of some description that can be controlled by the smartphone.
  • This is what I think off as IoT 1.0 or square one.
  • This is where every device is controlled by the smartphone but where every device exists in glorious isolation to all of the others that are out there.
  • For example, controlling a light bulb or air conditioning unit from my smartphone is great but other than saving on shoe leather, it doesn’t really offer the user any real benefit.
  • However, a system where all of my devices are aware of each other and can be controlled in an integrated way or can control themselves based on the user’s preferences is much more interesting.
  • This is what I refer to as IoT 2.0 and of this there is very little to be found with systems, standards and protocols remaining completely proprietary.
  • This is a problem that Apple is trying to solve with HomeKit and HealthKit and it is very telling that of the multitude of companies that I have seen in the last two days these two words were not mentioned once.
  • I suspect that this is because even the small companies have realised that the real value remains in the data and fear that while HomeKit will allow them to work well with other devices in the home, the real value will accrue to Apple rather than to themselves.
  • This is the deadlock that has to be broken before the utility of smart pet feeders, shoes, sunshades, beer makers, door locks, beds, pillows and so on really come into their own.
  • Of this there is no sign and without it, is suspect that the electronics buying public will be unenthused with paying $179 to be able to control an air conditioner for which it already has a remote control.

 Huawei – Double down. 

  • After a difficult 2016 where it fell to third place in its home market, Huawei is doubling down with the launch of its new flagship the Honor 6X.
  • The 6X is the first device to use 2 rear cameras on a mid-range device and offers a few funky photo modes to try and make its photography offering stand-out.
  • Huawei promises much better performance and battery life and is targeting to ship 30m units, double that of the 5X.
  • Its main differentiator in achieving this goal is price where the device will sell for $250.
  • The problem here is that all of its competitors are doing the same thing and while Huawei might sell 30m units of this product, I am certain that it will make almost no money doing so.
  • Huawei is symptomatic of life in smartphones where a one needs a huge scale advantage or a thriving ecosystem to make money.
  • Huawei has neither and difficulties in its home market are making it more reluctant to really invest to achieve these aims.

Android Things – Good intentions.

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The road to hell is paved with good intentions. 

  • Google has updated its OS for Internet of Things (IoT) with the release of a developer preview, but I fear that if the OS is released to open source, the same chaos and insecurity that hampers Android will prevent this from becoming successful.
  • Releasing software to open source in the fixed world works well and all benefit from it, but in mobile devices it has caused nothing but problems for the last 15 years.
  • Android Things is an update of Brillo (launched at Google i/o in 2015) which to date has seen very little traction.
  • What has been more successful is Weave which is a communications layer that enables all of these devices to talk to each other as well as interact and integrate with Google services such as Google Assistant.
  • This has fared considerably better and is currently being implemented by Phillips, Samsung, Belkin, TP-Link, Honeywell, Wink and a number of others.
  • Using Android on IoT devices is fraught with problems as:
    • First: Most IoT devices today are not required to do much other than turn things on or off or relay the data from the sensors to another unit.
    • Consequently, using a smart operating system such as Android even when it has been stripped down appears to be overkill.
    • This is because a completely proprietary real time operating system (RTOS) will be easier and cheaper to deploy and will probably result in much longer battery life.
    • It also has the benefit of giving its owners complete control which is something that they wont have using Android Things.
    • Second: If the software is open source then those that use it are likely to pick and choose the elements and the APIs that they need for their device and drop the rest.
    • This means that every device will be running a slightly different version of Android Things making updates, security and software management almost impossible.
    • It will also make it much more difficult to include devices as part of a wider ecosystem as each device will need to be assessed to see what it has and whether it will work with other devices and services.
  • This is why I think that it is important that Android Things is like Android Wear and Android Auto which are not open source and remain tightly controlled by Google.
  • That way the software will be much more easily managed with timely updates and consistent APIs.
  • Despite this, I think that the piece of this puzzle that really matters to Alphabet is Weave.
  • Weave connects all of the devices together as well as connects them to Google services such as Google Assistant.
  • Furthermore, Weave sits mostly on a server which is fully under Google’s control and which it can update at anytime.
  • It is this piece that allows all of the devices to be integrated together (like HomeKit) and controlled from one place such as Google Assistant.
  • This is critical as it is this piece that will pass all of the data back to Google to help it improve its AI as well as monetise the usage in the normal way.
  • Consequently, I suspect that the best option for IoT device makers will be to do their own thing on the device but then ensure that the device can integrate with Weave such that they can benefit from being part of the wider ecosystem.
  • HomeKit and Weave are just two of a myriad of solutions that are available for IoT devices which in itself is a big problem.
  • This is because it is very difficult to decide which one to support and as a small company this could easily be an existential choice.
  • I think that these problems will keep IoT as a theme with a lot of promise but very little substance in 2017.
  • The two sub-segments of smart home and e-health are likely to emerge first but it is going to take far longer than the press releases would have us believe.
  • Alphabet remains on my indifferent list with most of the good news and none of the bad already priced into the shares.
  • I prefer Tencent, Baidu and Microsoft.

GoPro vs. DJI – Autonomous gambit

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DJI is making a big gamble with the Mavic Pro. 

  • Hot on the heels of GoPro’s Karma launch (see here), DJI has launched a similar drone but I see it taking a big risk by using autonomous features as a major selling point.
  • The Mavic Pro is both lighter and smaller than the Karma but comes at a higher price and looks to be much less user friendly than the Karma.
  • What really makes the difference between the two is the fact that DJI has packed the Mavic Pro will autonomous features such as collision avoidance, object recognition and “follow me” functionality.
  • RFM research indicates that GoPro has avoided adding any of these features because they are not yet good enough to offer a good and reliable user experience.
  • If DJI has managed to perfect these features, this will represent a major step forward, but I fear that DJI’s hardware heritage means that it has not really internalised how important getting these features right has become.
  • DJI is probably Schenzen’s most prominent technology company as it is known throughout the world as the maker of the best drones available.
  • Drones are at an early stage of development meaning that they remain in the realm of hobbyists and professional photographers.
  • With these users, ease of use is not a major problem as they will invest the time to learn but for the average consumer, these devices are not really market ready.
  • This means that features such as collision avoidance and “follow me” have to work flawlessly before they the mass market will adopt them and they will actually do substantial damage to a brand if they are not.
  • This is why I think that GoPro has avoided adding these features.
  • This means that by promoting them, DJI has done what no one else could and got them to work, or it has misunderstood how important these features will become.
  • This is exactly the problem that sunk Lily Robotics which ran a very successful crowdfunding project but has subsequently been unable to live up to its promises and is now the subject of an investigation.
  • DJI is well known as a maker of quality drones but to date its default position on autonomy is that whenever the drone gets into difficulty it immediately hands-off control to the user.
  • This is when the user needs autonomy the most and I think that until the software is good enough to get the drone out of difficulty, these features are a non-starter.
  • Hence, I think that DJI is taking a big risk in headlining with these features as I fear that they will not live up to the promises that DJI is making.
  • This is the opportunity for the Karma to capitalise but when it comes to software and ecosystem, GoPro still has plenty of difficulties of its own (see here).
  • The net result is that easy to use and cost effective drones are still a long way away from the mass market and I think that they will remain in the domain of the hobbyist and professional for some time to come.
  • Very much like virtual reality, I do not see drones lifting the fortunes of GoPro or bringing DJI to a new level of growth for a long time, if ever.

Softbank & ARM – We’ll be back!

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I think ARM could return to the market in 5 to 10 years. 

  • SoftBank and ARM have announced that SoftBank will acquire ARM for GBP17.0 per share in cash representing a 43% premium and a total price of $31.6bn.
  • From ARM’s perspective the rationale for the deal is clear as:
    • First: ARM shareholders are getting a pretty good deal.
    • With the rapid slowdown in ARM’s core market and the difficulties being experienced by many of its customers, investors are unlikely to see GBP17.0 on the share price in the foreseeable future.
    • From that perspective ARM’s board have a fiduciary duty to accept an acquisition if it is deemed to be in the interests of shareholders.
    • Second: SoftBank has committed to substantially ramp up investments, particularly in IoT, which is something that as an independent company ARM would never have been able to do.
    • Third: SoftBank has committed to maintain ARM’s independence, pretty much exactly the way it is, which will have been critical to ensuring that customers, partners and users of ARM’s technology are comfortable with the acquisition.
  • However, from SoftBank’s perspective the acquisition is less obvious:
    • First: ARM is a long way outside of the sorts of areas where SoftBank has historically invested and there does not seem to any fit with anything else that it does.
    • Second: One potential reason for the acquisition would be to use ARM as the foundation upon which to build the next Intel but I am certain that this is a non-starter.
    • This is because there is no way that ARM’s existing customers and partners would stand idly by while SoftBank builds a competitor while owning technology upon which they have become dependent.
    • Third: The 30% appreciation of the Japanese Yen and the flat-line of ARM’s share price over the last 12 months means that the transaction is 30% cheaper for SoftBank than it was 12 months ago.
    • Consequently, this investment could be a vehicle for investing in the recovery of the pound but it looks like that SoftBank’s interest predates the recent 10% collapse in the GBP value.
  • It would appear that SoftBank aims to earn its return on the money invested through an expected appreciation of the GBP once Brexit has been executed and from returns on the investments that will now be possible by ARM.
  • I expect that these will be aimed at pushing ARM’s processor into more industry verticals such as servers, IoT, automotive and so on but also at increasing the degree to which ARM’s technology is used in device chips.
  • This will have the effect of both increasing volume (more devices sold using ARM) and increasing price (more ARM technology used in each device).
  • In the long-term, I can’t see any reason why SoftBank would want to hold onto this as there is no strategic fit, synergies or integration benefit to be had from owning ARM.
  • Therefore, I suspect that if SoftBank is successful at increasing’s ARM’s position through accelerated investments, we will see ARM return to the market in the form of another IPO just at a much higher level in 5 to 10 years’ time.

GoPro – Needs a hero

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GoPro must make the ecosystem its top priority.

  • I think that GoPro will soon begin to really struggle as the hardware element of its product becomes less and less relevant.
  • The outlook for GoPro is exactly the same as it is for almost every other seller of consumer electronics: execute on the ecosystem or be commoditised by Asia.
  • There is no doubt that GoPro makes fantastic cameras and its ability to cram 4K video with good frame rates and storage into such a small package and still have good battery life is second to none.
  • However, the competition is not standing still and inexorably it will close the gap on GoPro and erode the hardware advantage away.
  • This combined with a slowing market for its products means that GoPro has to find another way to engage with its users to ensure that they will always buy a GoPro product and that they will pay a premium for them.
  • This means that GoPro must focus on the user experience and the services that it offers with its cameras and it must enter the ecosystem.
  • Most users shoot far more video and take far more pictures than they will ever use and smart software that can help the user sort through and keep the good stuff will add value.
  • Furthermore, there is a lot that can be done in the cloud and around building a community to which users want to belong and engage with.
  • Unfortunately, I think that GoPro has neglected to really focus on these areas and now finds itself behind the curve when it comes to creating an easy and fun to use experience.
  • I also worry that GoPro has not really internalised how important the ecosystem is to maintaining its brand equity, user preference and most important of all margins.
  • It is still not too late as its hardware is still far ahead, but I would be looking to see real focus on and improvement in the user experience and in the community before the end of 2016.
  • In the meantime, the outlook is pretty tough with demand unlikely to live up to the 15% growth predicted by the consensus estimate.
  • Fortunately, GoPro’s PER multiple is now at a much more reasonable level in the mid-teens but if there is no growth in 2016, it could fall further.
  • It is at this point that it could become an acquisition target and I could see Google or Sony considering on picking up GoPro at a bargain price.
  • I think it much less likely that Apple will buy it.

Netflix – Rollercoaster

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Netflix will become even higher risk in the future.

  • Netflix’s failure to renew its streaming deal with Epix (Lionsgate and MGM) is a clear sign that Netflix intends to move up the value chain to become a purveyor of exclusive content.
  • This is a far riskier proposition than being a distributor of content that is easy and fun to access and use but I think that Netflix has little choice. .
  • This is because without exclusive content, Netflix will become commoditised as content creators have now realised that it is not that difficult to allow subscribers to stream content directly from them.
  • Hence, Netflix now prioritises proprietary content while Epix is interested in getting its content onto as many platforms as possible.
  • This impasse is what I suspect led to the deal not being renewed.
  • This will leave Netflix’s catalogue with a significant dent in it come September and Epix’s content will be moving to Hulu.
  • I suspect that a number of Netflix’s customers will not be happy that content that was previously included in their subscription will have to be paid for again with a subscription to another vendor.
  • This is where the strength of Netflix’s own content becomes of critical importance.
  • It must continually provide its users with compelling and exclusive content such that they remain willing to pay the monthly fee.
  • The problem with this is that the movie and TV production business is really hit and miss.
  • Content that is expected to be wildly successful often bombs and content that is considered to be of limited interest occasionally does far better than expected.
  • In order to counter these swings the content creator must have a wide stable of content to catch the outliers as well as very deep pockets to finance the troughs.
  • Netflix has two big hits on its hands (House of Cards and Orange is the New Black) but it also has a long list of content that not many users have ever heard of.
  • This is why once attention turns from subscriber growth to profitability, investors are going to realise just how risky this business had become.
  • To be fair to Netflix, this is the only direction that it could reasonably have moved towards as its starting proposition as a content distributor is already showing signs of commoditisation.
  • Furthermore as content creators realise that they can distribute their content over the Internet, the need to have Netflix in the middle will vanish.
  • Consequently, I think that in the long term investors need to look at Netflix as a film and TV producer with the rollercoaster financial performance that goes along with it.