Monday, January 3, 2011
Tuesday, December 28, 2010
Much has been written recently about the future of digital content delivery, primarily via opposing camps discussing the unquestionable strength or impending crash of Netflix’s shares; both longs and shorts point to digital delivery of content as the catalyst behind future performance. A tipping point in content delivery is occurring, and the development of the next few years will impact the market as significantly as Netflix’s delivery model did over the past decade.
It will soon become easier for content creators to reach large pools of customers without going through separate distributors. In the past, middlemen such as Blockbuster or retailers were essential in bringing customers together, and Netflix’s success in becoming the major (and basically the only) player in this market over the past decade shows that, as of this moment, it is still very important. However, content creators should soon be able to bypass entities like Netflix if they choose to do so.
If future consumers want to watch media on mobile devices, a content creator needs only to write applications for iOS and Android (and maybe a few others) in order to be able to reach the majority of the market. If customers prefer watching on a computer, making content available through individual websites or aggregation hubs (like Hulu) is even easier. Delivering content for viewing on an actual television is where distributors (cable companies and Netflix) are currently most needed, but internet-enabled TVs are hitting the market and seem likely to become the industry standard in the near future. Then, content providers can reach a customer through a website or application.
Because of the ease of delivery, I see content providers working to gain greater control of content to increase revenue and deliver their best properties straight to consumers. I can see a scenario where four tiers of differing content, availability, pricing and legality exist.
Tier 1: Latest & Best Content, Owners as Distributors, Highest Prices
The Tier 1 offerings will be the studios’ best content delivered to consumers as directly as possible. (For example, a consumer uses an NBC-for-Andriod application to gain access to every episode of The Office). Consumers will have to go straight to the owners (via a website, mobile-device application, etc.) to get the latest films, TV episodes, or classics of either medium. They’ll also likely pay relatively high prices, as the studios have no reason to give away their best content, whether directly to consumers or to other distributors.
Tier 2: Limited but Broadly-Appealing Content, Distribution Partnerships, Medium Prices
Future Tier 2 distribution may look a lot like Hulu or Hulu Plus does today. Content owners may partner together to create some entities that aggregate content to allow less-discerning customers to easily access their content. These portals may simply tease customers with a few available episodes for free or allow a greater library for some cost, but ultimately, the purpose would likely be to point customers to the owner’s own purchasing/viewing platform.
Tier 3: Lots of Acceptable Content, Mass Distribution, Pricing Consumers Love
Tier 3 content providers will attempt to bridge the gap between their customers’ desires for cheap content and the content owners’ resistance to providing attractive properties. Netflix will likely own this sandbox for the foreseeable future, and their main battle may be negotiating with content owners to obtain enough content to keep subscribers from cancelling without having to pay an amount that will decrease margins. Netflix does seem to be comfortable in serving this niche, as Netflix’s own CEO, in open letter published on Seeking Alpha, wrote “…that at $7.99 per month, [Netflix] consumers don’t expect to have everything under the sun.” While a subscriber’s $8 will probably not buy much content from Tier 1 or Tier 2 distributors, subscribing will only remain attractive if content owners are charitable in providing some watchable content to the Tier 3 distributors.
Tier 4: Illegal, but Everything You Could Ever Want and More
While older people may not even be aware of it, almost any digital media ever created is easily available online. Consumers who are willing to ignore the law can easily stream or download pretty much anything. The availability beats anything that any company provides: movies are available while still in theatres, and episodes are uploaded the night they air. While this dark corner of the market may be relatively unimportant now, expensive prices from Tier 1 and Tier 2 providers and lackluster availability from Tier 3 may push more consumers, especially young ones, towards obtaining media through this medium.
Win, Lose, Draw
Content owners seem likely to win, as they will have the power to charge what they choose, whether selling directly to consumers or to third-party distributors.
Consumers seem likely to lose. Prices for media fell as Blockbuster put mom-and-pop rental stores out of business, and Netflix trumped Blockbuster by providing more content in a more efficient way for cheaper prices. Now, all-you-can-watch content seems likely to decline in quality and prices will increase for the most in-demand media.
The future for Netflix and other third-party distributors is less certain. If the best content is too expensive to be attractive, consumers will flock to cheaper content at Netflix. But Netflix will be at the mercy of content owners when negotiating the price and quality of content that they can redistribute. I personally think that the risk of owning shares at this point is not worth the potential reward, though as a consumer, I am rooting for their continued success.
Tuesday, August 25, 2009
As I begin this, Vonage is trading at over $2.40 in the aftermarket.
Vonage was trading below $.40 just five days ago.
The (investment) world is looking for an explanation. Barron's tech writers have been blogging frequently over the past few days, marveling at the huge move. The Yahoo! message boards are abuzz.
To me, this looks like a euphorically-driven chain reaction.
A short squeeze might have triggered this rally, but it isn't responsible for the majority of today's move. According to Yahoo! Finance, around the end of July, there were 4 million shares sold short. 41 million VG shares traded today, so short covering can't be credited with this move.
There also hasn't been any significant news within the past few days. VG reported optimistic results in the recent past, and they also announced a new international phone service last week. Vonage's comment on the situation seems to imply that the entire world just realized these couple tidbits and all tried to enter at once. I'm not buying that. I think that's the equivalent of saying "we have no idea why our stock is up 500% in a week, but we're just as estatic about it as you are!"
So my conclusion is that this is a euphoric rally driven by people going long. Owners at $.40 (who may have been underwater from previous purchases) probably aren't selling into strength, driving price even higher. Coverage in the media likely attracts new investors to this hot stock.
VG has been prone to such explosive moves; I was lucky enough to own it in the past prior to a positive announcement; shares jumped 100%.
Buying (or shorting) VG today or tomorrow is simply gambling. Without a clear driver of this extreme movement, there's no concrete reason why shares are worth so much more today than they were last week. At the same time, shorting against such powerful upward movement is insane. Three times during the day today, VG moved up over $.20 (representing 20+% moves) in mere minutes. That's not the kind of momentum I'd want to be shorting into.
This is certainly an interesting story, and it'll be interesting to see how and where things settle down. Stay tuned.
Buy a Kindle 2
Wednesday, May 27, 2009
Originally published at The No Buy List:
Barrons wrote about First Solar's weaknesses and competitive threats this weekend (Reuters coverage of Barron's commentary here), and an analyst, FBR Capital Markets, followed up Barron's with a downgrade on Tuesday morning.
The FBR analyst, who slapped an "underperform" rating on FSLR, mused that "recent checks indicate at least one of First Solar's top customers has already switched from First Solar to a silicon-based module vendor for a project that is currently under construction."
The Yahoo! article covering the analyst downgrade elaborated. "Hosseini noted that FBR's meeting with the KfW Bank Group, a Frankfurt-based development bank that lends especially to economic, social and ecological projects internationally, revealed that its year-to-date photovoltaic project backlog has shifted dramatically toward silicon-based modules compared with its 2008 thin-film-focused mix."
I have previously drawn similar conclusions on this blog and on Student Stocks. First Solar is a company that is ALREADY overvalued even before considering the significant, growing competition that they face from both silicon-panel makers and thin-film outfits. Though the share price unfortunately increased after my last article, I made (real) money in the past shorting FSLR from $280 to $140. Though shares have fallen $20 (10%) since the Barrons and FBR pieces, shares still should have plenty of downside room. I tried to short FSLR a few weeks ago (shares were at levels similar to today's price) but none were available.
I continue to dislike FSLR shares at this price, in this environment. I'd never go long, and I will be considering initiating a short position.
Support This Blog (and Author) by buying anything at Amazon.com
Monday, May 25, 2009
I have enjoyed writing about the Kindle and Amazon.com on multiple occasions over the past few weeks, so I decided that I'd try to bring everything together in one last post on this topic.
Both the Kindle 2 and the Kindle DX are attractive devices that perform niche functions spectacularly. If you're into reading books, both devices can make that hobby better. The Kindles have the ability to carry an entire library of books everywhere, and the ability to add to that library instantaneously from anywhere courtesy of a Spring-powered network. The e-ink in the reader is easy on the eyes, allowing for extended reading without the eyestrain that often comes from extended reading of an LCD screen.
One of the best aspects of the Kindle (which often goes unreported) are the thousands of free titles available for it. Virtually every book that is off-copyright can be read for free on the Kindle (as on any other e-book reader). A Kindle user can read all of Shakespeare, Mark Twain, and more without spending a cent on the literature itself. The content is often available for free in the Kindle store (which means easy wireless downloads anywhere) or can be found in PDF format, which the Kindle can also utilize.
That function, coupled with a price decrease could be the feature that expands the Kindle's market appeal. The current price of $359 is still prohibitively expensive, as the $5 bills saved on Huck Finn or The Merchant of Venice take way too long to add up. But if Amazon was able to offer Kindles to schools for a price closer to $100, the savings would add up and schools may be motivated to integrate the Kindle into textbook curriculum.
So my reoccurring analysis is that the Kindle is a solid device that prices itself out of practicality. The bookiest of bookworms may be able to see some savings and yuppies may buy the device for the "cool" factor, but it is not yet practical to substitute the Kindle for paper books. But more and more e-readers are entering the market, which should force Amazon to price its reader more competitively in the future. I don't doubt that there will be a day when many 7th-graders read Uncle Tom's Cabin on an electronic reading device. But today is not that day.
And the same overpriced thesis can be applied to Amazon shares. Amazon is a great company that has allowed me to make money (via selling on the website, not by owning the stock). As eBay continues to slide towards irrelevancy, Amazon will become even more dominant in e-retail. But shares are ahead of themselves, and the potential for medium-term price appreciation from this point seems minimal.
Lastly, I feel compelled to acknowledge that my affiliate promotion of Amazon.com has surprisingly generated some decent results. I have sold two Kindles and a few other miscellaneous items via my promotion links (like the one at the bottom of this post), which have generated almost enough money for me to pay for one half of one accounting textbook. So thank you for reading this blog, and I humbly ask that if you ever make any purchases from Amazon.com, please start those purchases by clicking the link below.
On a final note, I have started my summer internship and writing will take a backseat to my real work. But I plan on continuing to post regularly, so check back for the content that you can't live without. Also, visit The No Buy List, which is a more frequently-updated compilation of short ideas.
Saturday, May 16, 2009
I was reading some WSJ today and came across an article that linked to this graph, which I hadn't seen before.
Graph of US budget deficit:
Please vote against big-government supporters in the next election, no matter what political party they may be affiliated with.
Buy a Kindle 2 or anything else at Amazon.com