Tuesday, December 21, 2010

Netflix CEO Reed Hastings Disagrees with Investor "Shorts"

You would not expect any CEO of a public company to do anything but defend the company's valuation. Reed Hastings, Netflix CEO, facing what might be termed significant concern in some quarters that the firm is over-valued, does so in this post, a response to investor Whitney Tilson's stated reasons for shorting Netflix.

You can read the original here: http://seekingalpha.com/article/242320-whitney-tilson-why-we-re-short-netflix

Both sets of arguments are cogent. The one point where the Hastings response seems to me to miss the mark is Tilson's argument about higher broadband costs, incurred by consumers, not by Netflix, to consume Netflix or any other provider's streaming content.

Hastings rightly points out that on a cost-per-megabyte, backbone transport costs are declining. He's right about that. But Tilson seems to be pointing to the money end users have to pay, for their broadband access subscriptions, to consume streaming content.

As users begin to watch more online video, it is highly likely they will need to spend more money on their broadband access plans, and that will play some role in any consumer's evaluation of their costs to watch streaming video. It does not appear that Tilson was commenting on Netflix costs to move video across the Internet backbone, but about potential higher costs borne by end users to watch online video.

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