Five (5) Tech Turkeys of the year?

Cisco is usually very sound in their decisions. Lately their play toward consumer brands has seem to backfire they are trying for example to unload Linksys or so I've heard .

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Netflix tops the list, their decisions to raise the price then to comeup with another company makes absolutely no sense .

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amirm said:

Oh he knows. He just can't say it in public .

Here is the back story. Starz cable channel by "accident" got rights (including sublicensing) for Internet distribution for all the movies it shows on TV. It tried to launch its own service 5 years ago and failed miserably. So then comes Netflix, and they get a sweet license for all the movies they had. With this super low cost, and license to bunch of old movies on the cheap, Netflix launched its streaming service as a free add-on to their DVD business. Consumer responds positively for getting something for nothing and Netflix becomes the darling of the stock market.

Well, Starz gets beat up something silly over the license and chooses to not renew. All of a sudden, Netflix is facing multi-billion dollar cost for movie licensing. I think the forecast for next year $1.5B. Where to get all of that cash? Oh, why not split the company into two parts and sell one part and raise cash that way. And oh, better raise the subscription rate too as to make up for the far higher cost of license.

All logical of course. There was no free lunch for streaming content on the web. They and consumers rode it for a while but the bottom was bound to fall out and it did. That, combined with higher cost of mailing discs brought the darling of the industry into the camp of losers.

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amirm said:

Oh he knows. He just can't say it in public .

Here is the back story. Starz cable channel by "accident" got rights (including sublicensing) for Internet distribution for all the movies it shows on TV. It tried to launch its own service 5 years ago and failed miserably. So then comes Netflix, and they get a sweet license for all the movies they had. With this super low cost, and license to bunch of old movies on the cheap, Netflix launched its streaming service as a free add-on to their DVD business. Consumer responds positively for getting something for nothing and Netflix becomes the darling of the stock market.

Well, Starz gets beat up something silly over the license and chooses to not renew. All of a sudden, Netflix is facing multi-billion dollar cost for movie licensing. I think the forecast for next year $1.5B. Where to get all of that cash? Oh, why not split the company into two parts and sell one part and raise cash that way. And oh, better raise the subscription rate too as to make up for the far higher cost of license.

All logical of course. There was no free lunch for streaming content on the web. They and consumers rode it for a while but the bottom was bound to fall out and it did. That, combined with higher cost of mailing discs brought the darling of the industry into the camp of losers.

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amirm said:

I think you are thinking of products produced by Starz. I am talking about standard movies like Spiderman from Sony. When you watch that on Netflix, the *license* to watch that movie did not come from Sony but from Starz. The only major studios that Netflix had for streaming were Sony and Disney and both of these came through Starz contract. Here is more on it: http://www.customholesaw.com/index.php?main_page=index&cPath=116_119

"Netflix to lose Starz, its most valuable source of new movies

Premium cable network Starz Entertainment will end its deal to provide movies to Netflix, a surprise decision that will deprive the popular online video service of its most valuable source of recently released movies.

Analysts had said that if Starz were to renew its agreement, which expires in February 2012, it could have been worth as much as $300 million to John Malone's Liberty Media-owned network.

However, executives at Starz apparently concluded that they would lose even more money by giving consumers a reason to subscribe to Netflix instead of the cable channel.

"This decision is a result of our strategy to protect the premium nature of our brand by preserving the appropriate pricing and packaging of our exclusive and highly valuable content," Starz said in a statement Thursday. "With our current studio rights and growing original programming presence, the network is in an excellent position to evaluate new opportunities and expand its overall business."

Starz, which controls pay-cable rights to movies from Walt Disney Studios and Sony Pictures, signed its current agreement with Netflix in 2008. At that time, online video was watched by only a small number of tech-savvy young people and the estimated $30 million per year the cable network received was seen as new revenue that would have little impact on its traditional television business...."

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FrantzM said:

Hi

Being a business person myself albeit on amuch (repeat 10 times ) .. I was aware of the pitfalls of armchair CEOing .. That didn't stop me from criticizing Netflix and their CEO but now it does make sense .. Netflix makes money (2.16 Billion in 2010) but 1.5 Billion in licencing would have destroyed them... They must however have known that the Starz deal would not last long.
Cisco remains the most puzzling though ... More than hlaf a billion dollars is no chump change ....

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Phelonious Ponk said:

Frantz, the armchair CEO is the thinking man's armchair athlete. I'm willing to accept being partially informed and completely wrong, but I have to play. It's just too much fun.

Tim

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FrantzM said:

Agreed and I hope you understand it wasn't directed at you .. I was as guilty as you are, calling them fools and making sure of cancelling my subscription ...

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