Crashing

The Rise And Fall Of Netflix: Here Are 5 Reasons Why Netflix Stock Is Crashing As The Company Heads For Oblivion

Netflix originally had a truly disruptive business model and they fundamentally changed the way that Americans consume media, but now they are heading for the same fate as Blockbuster.  For years, Netflix was really the only game in town, but now content costs are spiraling out of control and new competitors with even deeper pockets threaten to become the dominant players in the industry.  Of course Netflix is not going to die overnight, but the writing is on the wall.  In fact, Netflix stock has already been crashing over the last several months as investors have begun to realize that the future is not bright for the company.  Back in the middle of the summer, the stock price peaked at $423.21, and as I write this article it is currently at $269.70.  That is an astounding collapse, and here are 5 reasons why Netflix is headed for so much trouble…

#1 The Loss Of Key Content

At one time Netflix boasted the most impressive lineup of television shows and movies in the entire world by a wide margin, but those days are long gone.  The steady loss of content threatens to become an avalanche over the next two years as Disney, Fox and WarnerMedia all pull key content from the service…

Disney is launching its own Netflix-style subscription VOD service next year — dubbed Disney+ — so Netflix will be losing Disney-owned content starting next year. Disney is acquiring 20th Century Fox, so expect more of Fox’s content to leave Netflix, as well. AT&T’s WarnerMedia had pegged Q4 2019 for its own broad-focused SVOD entry, so it’s also going to be pulling back its own stuff from Netflix.

#2 Disney+ Looks Like A Netflix Killer

If you are going to sign up for a streaming service for your family, would you want the one with Disney movies, the Marvel universe, Star Wars, Pixar and ESPN or would you want the one without all of those things?

Disney already has the best content, and they have much deeper pockets than Netflix does.  As Stephen McBride has noted, it is going to be very difficult for Netflix to compete with that…

Disney will launch its own streaming service called “Disney+” next year. It’s going to pull all its shows and movies off Netflix and put them on Disney+ instead.

This is a huge problem for Netflix because Disney has the world’s best content by a long shot. It owns household brands like Marvel… Pixar Animations… Star Wars… ESPN… ABC… X-Men… not to mention all the traditional characters like Mickey Mouse and Donald Duck.

#3 Amazon Prime Is Ramping Up Their Spending On Original Shows

Amazon is willing to spend billions on original content, and they have already been gobbling up market share.  Though still behind Netflix, Amazon has shown a willingness to do whatever it takes to become a major player.

For example, at one time you could watch Downton Abbey on Netflix, but now that entire series is exclusively found on Amazon Prime.

And when Amazon announced that it was going to spend 5 billion dollars on original content next year, that freaked out Netflix so much that they increased their planned spending on original content to 12 billion dollars…

In February, Amazon (AMZN) announced it would spend $5 billion developing original shows and movies this year. In response, Netflix upped its spending by 50%.

Netflix had planned to spend $8 billion on shows and series this year… now it’ll spend roughly $12 billion. It now invests more in content than any other American TV network.

#4 Netflix Cannot Win A Content Arms Race Because They Are Already Drowning In Debt

Netflix subscribers may appreciate all of the new content that the company has been churning out, but it has come at a very great cost.

Netflix was already drowning in debt prior to 2018, and that debt has shot up by 71 percent to $8.3 billion so far this year.

Meanwhile, two competitors with much deeper pockets will be able to outspend the company very easily in future years…

According to content spending numbers reported by research firm Ampere Analysis, Disney and Fox are projected to spend $22 billion per year on both original and acquired content. Similarly, Comcast and Sky are expected to spend $21 billion in 2018.

#5 The Cost Of Licensed Content Is Getting Out Of Control

Netflix has been heavily promoting their own original content, but 63 percent of the content that their subscribers consume is still from other sources…

Original content accounted for 37% of Netflix’s U.S. streams in October 2018, up from 24% a year earlier (and just 14% in January 2017), per video-measurement firm 7Park Data. But that means the majority (63%) of Netflix’s viewing is still from licensed content.

And that licensed content is becoming prohibitively expensive.  For example, Netflix just made a deal to renew streaming of “Friends” for another year for 100 million dollars…

Warner Bros.-owned “Friends” stood at No. 3 — with its ongoing popularity helping to explain why Netflix was motivated to ink a one-year renewal for the ’90s-era sitcom, in a deal reportedly worth $100 million.

It absolutely amazes me that millions of Americans are still willing to tune in to old reruns of that show, but apparently it is happening.

But there is no way that deal makes any economic sense whatsoever.

At this point, Netflix is bleeding cash at a rate that is staggering.  It has been projected that Netflix’s free cash flow will be negative 2.79 billion dollars in 2018, which will be the worst year that it has ever experienced.

Looking forward, Netflix will be steadily losing key content and subscribers to competitors, and it is inevitable that their borrowing costs will go up quite a bit.

Without sufficient revenue to service their exploding debt, it is only a matter of time before Netflix flames out and is forced to surrender.

Netflix shares are still worth $269.70 at the moment, but that won’t last for long.  Eventually the company is going to zero, and no amount of irrational optimism will stop that from happening.

About the author: Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

Crashing: Apple, Twitter, Oil, Commodities, Greek Stocks, Chinese Stocks

Crash - Public DomainThe month of August sure has started off with a bang.  Tech stocks are crashing, oil is crashing, industrial commodities are crashing, Greek stocks crashed the moment that the Greek stock market reopened for trading, and Chinese stocks continue to crash.  At this point we have not seen a broad crash of U.S. stocks yet, but it is important to note that the Dow is already down more than 700 points from the peak in May.  If it continues to slide like it has in recent days, it won’t be too long before we will officially reach “correction” territory.  Just a few days ago, I described August as a “pivotal month“, and so far that is indeed turning out to be the case.

A full-blown financial crisis has not erupted yet, but we are well on the way.  In this article, I want to look at a few of the “crashes” that are already happening…

Apple

This is more of a “correction” than a “crash”, but it is very noteworthy because it is happening to one of the most important U.S. stocks of all.  The price of Apple stock has already broken through the 200 day moving average, and at this point it is down nearly 11 percent from the peak…

Shares of Apple are down 10.9% from their highest point in a year — which places the stock squarely in what’s considered to be a correction. The unofficial definition of a correction is a 10% or greater drop from a recent high. Shares of Apple hit a 52-week (and all-time) high on $134.54 on April 28.

Twitter

If you want to see a real crash, just look at what is happening to Twitter.  The stock was down close to 6 percent on Monday, and overall it has fallen 58 percent since early last year.  The price of Twitter stock has never been lower than it is right now, and many investors are very apprehensive about what comes next…

Twitter shares hit a record low on Monday, closing down nearly 6% to $29.27.

That is 58% below their peak in January 2014.

Shares have fallen to their lowest point since the company went public in November 2014 weighed down by negative comments on growth from company executives that rattled investors. Its previous low was $30.50 in May 2014 as concerns over slowing user growth began to take a toll.

Of course there are tech companies that are in far worse shape than Twitter.  For example, just consider what is happening to Yelp.  Shares of Yelp recently plummeted 25 percent in a single day, and they are down about 70 percent over the past year.

Greece

The Greek government was quite eager to reopen their stock market this week.

Perhaps they should have waited longer.

On Monday, we witnessed the greatest stock bloodbath in Greek history.  The following comes from Reuters…

Greece’s stock market closed with heavy losses on Monday after a five-week shutdown brought on by fears that the country was about to be dumped from the euro zone.

Bank shares plummeted 30 percent before loss limits kicked in to stop investors selling any more. The main Athens stock index .ATG ended down 16.2 percent, recovering slightly after plunging nearly 23 percent at the open.

It was the worst daily performance since at least 1985 when modern records began, including a 15 percent fall when Wall Street crashed in 1987.

Puerto Rico

Things also continue to unravel for “America’s Greece”.  On Monday, a U.S. commonwealth territory defaulted on debt for the first time ever…

Puerto Rico’s Government Development Bank announced Monday that it was only able to make a partial payment on its Public Finance Corporation (PFC) debt service due over the weekend.

In response to the non-payment of the full service, Moody’s said it viewed the situation as a default.

“Due to the lack of appropriated funds for this fiscal year the entirety of the PFC payment was not made today (the first business day after the Saturday deadline),” GDB President Melba Acosta-Febo said in a statement. This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico to ensure the essential services they deserve are maintained.”

China

As I noted the other day, the Shanghai Composite Index declined 13.4 percent during the month of July.  It was the worst month for stocks in China since October 2009.

On Monday, Chinese stocks were down another 1.11 percent.  Since closing at 5,166.35 on June 12th, the Shanghai Composite Index has fallen precipitously.  As I write this, it is sitting at just 3622.86.

Oil

In the months prior to the financial crisis of 2008, the price of oil crashed hard.

Now it is happening again.

In July, the price of oil plunged 21 percent.  That was the worst monthly decline that we have seen since October 2008.

And on Monday, the oil crash continued.  The following comes from Business Insider…

On Monday in New York, West Texas Intermediate (WTI) crude fell more than 4% and slipped below $45 per barrel, a level it hasn’t touched since March.

Brent crude oil, the international benchmark that joined WTI in a bear market last week, dropped more than 4%, below $50 per barrel for the first time since January.

Commodities

In recent weeks, I have been writing over and over about industrial commodities.  This is yet another striking similarity to the last financial crisis.  In 2008, they started crashing before stocks did, and now it is happening again…

We see the Bloomberg Commodities index now at a 13-year low. Copper is down 28 percent for the year, tin is down 30 percent, and nickel is down 44 percent.

This is a giant red flag that indicates that we are plunging into a deflationary cycle.  When global economic activity slows down, so does demand for industrial commodities.  I don’t understand why more people can’t see this.

I have been warning that a deflationary downturn was coming for a very long time, and so have others.  For instance, just consider the following excerpt from a recent article by Nicole Foss…

Our consistent theme here at the Automatic Earth since its inception has been that we are facing a very powerful deflationary depression, following on from the bursting of an epic financial bubble. What we have witnessed in our three decades of expansion and inflation is nothing short of a monetary supernova, and that period has been the just culmination of a much larger upward trend going back many decades at least. We have lived through a credit hyper-expansion for the record books, with an unprecedented generation of excess claims to underlying real wealth. In doing so we have created the largest financial departure from reality in human history.

Bubbles are not new – humanity has experienced them periodically going all the way back to antiquity – but the novel aspect of this one, apart from its scale, is its occurrence at a point when we have reached or are reaching so many limits on a global scale. The retrenchment we are about to experience as this bubble bursts is also set to be unprecedented, given that the scale of a bust is predictably proportionate to the scale of the excesses during the boom that precedes it. We have built an incredibly complex economic system, but despite its robust appearance it is over-extended, brittle and fragile after decades of fueling its continued expansion by feeding on its own substance.

Things continue to line up in textbook fashion for a major financial crisis during the fall and winter.

I hope that you are prepared for what comes next.