Netflix Success Challenge in a Nutshell

In a nutshell, the key challenge for Netflix is to "grow members and revenue faster than content spending," as the latest Netflix shareholder letter mentions. In other words, Netflix has effectively become a programming network, not just a content delivery service.

And as has been true for all programming networks, original and unique content is the growth driver. That doesn't mean every bit of content, or even most content, has to be unique to a particular network. But virtually all popular networks have one or more "signature series" that define the network and pull in viewers.

Netflix will have to invest to do so, and that means there is going to be a tension between doing so and then adding enough additional new subscribers to keep its profit margins intact. 

Apple Financial Results Answer No Key Questions

Apple's fiscal 2013 second quarter ended March 30, 2013 included quarterly revenue of $43.6 billion and quarterly net profit of $9.5 billion, compared to revenue of $39.2 billion and net profit of $11.6 billion for the same quarter of 2012.

Despite posting results most companies would be happy to report, such as "average weekly growth of 19 percent, Apple's quarterly results do not answer any of the strategic questions observers now have about the company. 


What is the "next big thing" to drive Apple sales and customer delight? 

Can Apple create yet another big new market? Perhaps most importantly, has Apple lost the creative edge and become a "normal company" with a "normal growth rate?

In fact, some think single-digit growth rates are where Apple is headed, in perhaps five years. 

Nor, it appears, will it be possible to resolve any of those questions until perhaps September 2013, or possibly even 2014, when Apple says it will launch the next round of new products. "Our teams are hard at work on some amazing new hardware, software, and services that we can’t wait to introduce this fall and throughout 2014," CEO Tim Cook said. 

And while the big strategic questions are not narrowly financial, financial performance is an issue. Gross margin was 37.5 percent compared to 47.4 percent in the year-ago quarter, for example. 

Apple estimates its gross profit margin will dip a bit further in the next quarter, and the company faces sharply declining rates of growth. Questions about Apple strategy also revolve around the likely impact on margins if lower-cost iPhones, despite the company's denials, are launched, as is the case for lower-cost iPads as well. 

International sales accounted for 66 percent of the quarter’s revenue, and growth was driven by the iPhone and iPad. Apple sold 37.4 million iPhones in the quarter, compared to 35.1 million in the year-ago quarter. 

Apple also sold 19.5 million iPads during the quarter, compared to 11.8 million in the year-ago quarter. 

By way of comparison, sales of sold just under four million Macs, compared to four million in the same quarter of 2012 show a slight decline. 

Apple and AT&T are Borrowing Money to Pay Dividends

In an unorthodox move that reflects relatively low interest rates and the high tax rate on bringing cash from overseas accounts back to the United States, Apple says it will begin to borrow money to fund share buybacks and a higher dividend. 

AT&T is doing so as well. In 2012, AT&T dividend payments were nearly $4 billion more than its free cash flow. And AT&T sees free cash flow being some $5 billion lower in 2013. Something has to give, some would say. 

In 2012, AT&T spent $12.8 billion to buy back shares, and another $10 billion to pay dividends. Company-wide, AT&T increased long-term debt by $5 billion in 2012. 

Given the super-low interest rates on corporate debt, there is an argument to be made for using debt to fund either share repurchases or dividends. Some might not agree it is a terribly good argument, though. 

Apple iPad Sales Growth Rate to Drop by an Order of Magnitude

No matter what results Apple turns in for the first quarter of 2013, controversy will swirl around the company and its fortunes. A loss of several hundred billion in market capitalization will do that.

At least according to eMarketer, the order of magnitude projected slowing of iPad sales in the U.S. market is one worry. 

Observers are looking for the next big thing from Apple, and there is growing concern about just how disruptive the next product category can be. 

Some worry that Apple does not promise "new products" until the fall of 2013. Some would say that is a long time in the consumer technology business. On the other hand, if Apple is planning an assault on entirely new categories, getting it right is important. 

If you have a hard time imagining a "magical" TV or wearable computer, you probably are not alone. It has been a while since Apple introduced a product that flopped, like Newton, or simply has failed to capture the imagination (Apple TV). 

What comes next might be quite important, and it will be important that Apple gets it right. It seems hard to believe a "new and improved iPhone" is going to do it. 

ESPN could cost $20 a Month, A La Carte

ESPN could cost subscribers $20 monthly if cable operators break up programming bundles and offer smaller packages of networks, Liberty Media Chairman John Malone John Malone speculates.

That estimate illustrates the reasons why a la carte access to video networks would not necessarily be more affordable for video subscribers, compared to what they already pay, in every instance. If a typical viewer watches a dozen channels, each costing about $5 a la carte, monthly bills would still amount to $60, if no expensive sports programming were offered. 

Add in ESPN and monthly bills climb to about $80. That would not necessarily represent a smaller sum than many subscribers now pay. 

Global Internet Access Speeds Up 25% in a Year, Peak Speeds Up 35%

Year-over-year, average global Internet access speeds grew by 25 percent, with nine of the top 10 countries also demonstrating growth. In fact, only the Netherlands (3.3 percent), Hong Kong (5.4 percent) and Japan (19 percent) reported growth below 20 percent between 2011 and 2012.

Year-over-year, global average peak connection speeds grew 35 percent, Akamai reports. 

Quarter-over-quarter, the global average connection speed rose five percent to 2.9 Mbps. A total of 98 countries/regions that qualified for inclusion saw average connection speeds increase from the third quarter of 2012, ranging from 0.1 percent growth in the Netherlands and Luxembourg to 23 percent growth in Côte d'Ivoire.

Global average peak connection speeds enjoyed a quarter-over-quarter increase of 4.6 percent to 16.6 Mbps. Hong Kong again claimed the highest peak connection speed at 57.5 Mbps, a rise of 6.2 percent from last quarter. 

Global broadband (>4 Mbps) and high-speed broadband (>10 Mbps) adoption improved by 2.7 and 2.1 percent respectively for the quarter. Global broadband adoption rates rose slightly to 42 percent, while high-speed broadband was 11 percent.

Mobile Money Has Implications for Commerce, Not Just Banking

In 2001, SMART Money in the Philippines, run by SMART Communications, a wireless telecom, was the one and only mobile payment system operating in the world. By 2006, there were 10 such systems. Today there are more than 150, in both the developed and emerging worlds, and 90 more are on the drawing board in the emerging world alone, according to Knowledge@Wharton and Ernst and Young. 

Today, nearly 20 percent of Kenya’s gross domestic product moves through M-PESA, the nation’s mobile-money system operated by Safaricom, its leading mobile network. 

Also, more than half of Kenya’s 22 million adults have M-PESA accounts, twice as many as have bank accounts. Most of those transactions are used to send money from urban areas to recipients in rural areas. 

Moreover, there is evidence that all those new users also are spurring the spread of ;hysical banking facilities as well.  For example, between 2005 and 2010 the number of bank branches in Kenya doubled (from 500 to 1,000), a growth that many attribute to pressure from M-PESA. 

International remittances are another area where mobile service providers have gotten into the "mobile money" business. Airtel Money, which is available in 11 countries in Africa and the Middle East, enables its 15 million users send and receive minutes of airtime, and trade those minutes for money. 

According to the Bank’s Global Financial Inclusion Database, there are 20 nations in the world where more than 10 percent of the population has used mobile money in the past year. As The Economist noted in analyzing this data, 15 of those countries are in Africa.

Potential customers for mobile money include the 1.8 billion people who, according to the World Bank, have a mobile phone but no bank account.  

The remittance market is about $400 billion a year globally through formal channels and, it’s been estimated, about $1 trillion through formal and informal channels. 



In developed economies, where banking is not a problem, as such, other values will drive mobile money, in particular the value of data about who is buying, what and where they are buying. In other cases, "owning the customer relationship" might be the value.