Friday, February 18, 2005


Nextel continues to ge more than its fair share of new cell phone subscribers. The company has the low churn rate and the highest usage rate. The company forecasts slower growth next year when it will be merged with FON. In the meantime, Sprint won another award for reliability of service. Sprint is moving quickly to offer audio and video subscription services.

TIVO added about 700,000 subs this year. Less than 300,000 were full pay. Good progress overall and the stock has bounced. TIVO to Go gets mixed reviews. Motorola and others are offering competing products and the interface needs to be tweaked. Portable TV is coming fast.

Music services are ripe to explode. When high quality music boxes are built into cell phones, pdas and lap-tops, who will buy an analogue radio.

Netflix (NFLX) is doing well. Understanding that NFLX has an extremely flat and wide low cost distribution bell curve gives shareholders reasons to be optimistic. Blockbuster and other video stores are faced with challenges from two directions. So far, cable companies are stuck in a pay per view mode or a short tailed inconveniently timed distribution subscription. Cable companies do not have the capacity to offer the selection offered by NFLX.

I am one who tries to avoid pay per view cost structures. I pay $6.95 for unlimited music rather than a charge per song. Studies show that consumers pay extra to avoid the uncertainty of pay per use fees.

As YHOO and others begin to broadcast low cost media over the internet, the distribution tails will grow very wide. This process will take years. NFLX should continue to grow during this transition phase. Subscription based pricing models are at the mercy of the dumbest competitor in the business. The companies should play "Tit for Tat". Unfortunately Blockbuster is poorly structured and makes poor decisions. It has lowered its price to $14.95. NFLX has selection and service and is growing the business at the profitable rate of $17.95. How long will investors allow BBI to burn cash trying to leap ahead of NFLX? There is room for NFLX, BBI and WMT if profitable pricing is maintained.

Newspapers are losing subscribers. The New York Times bought today. The Wall Street Journal bought CBS.MarketWatch a few months back. My family make a very nice profit on MKTW. The Times and Dow Jones have been criticized by investors for buying businesses that dilute earnings in the short run. Let me tell you, there is no long-run for traditional newspapers. When broadband speeds have doubled again, large screen prices have dropped 80% and online free services are plentiful, why would anyone pay for a newspaper? Down Jones and the Times are making moves required to suvive.

Maybe you think you will buy a newspaper routinely for the rest of your life. Remember there are economies of scale. The newspaperboy must be make more than double the price if he skips an average of one house out of two. I read more now than ever before but I read from paper less than ever before. Millions more dedicated folks write or produce news, art and commentary than ever before. Subscriptions will be a growing portion of our economy for years to come. However, the selection of materials available free or at low cost is going to be quite large.