In all the gushing over Netflix, there's room for caution

The reaction is predicable. The share price is not.

With a certain depressing predictability, the newspapers today are gushing in their praise for Netflix. The US-headquartered service now streams video to US 29.17m subscribers, up just over 2m since the start of the year, enabling it to claim to be the most watched network in the US.

Netflix added another 1m streaming members outside the US in the first quarter, bringing total international subscribers to 7.1m. It currently offers its service in Canada, Latin America and since early 2012, the UK. Netflix’s first quarter results provided a further boost to a share price that has been skyrocketing of late: at the end of last September, the share price was $55.

Since then, the share price has risen almost four-fold to $213. According to Netflix, its future success will be boosted by producing original content. The sum total of its original content to date is the grand total of one programme; that requires a generous definition of original, namely a remake of House of Cards.

It currently charges £6.99 per month in the UK; by contrast, the BBC licence fee seems really quite a snip. Just before potential investors empty the piggy bank and rush to invest in Netflix shares, they might care to reflect on the nature of this market sector. Netflix’s main rivals, the Amazon-owned LoveFilm and HBO, are not going to go away any time soon and can be expected to fight back.

If and when Amazon bids more aggressively for the rights to film and TV shows, the acquisition costs for Netflix cannot but rise. Also, as a number of sharper analysts have spotted, Netflix may have cash flow challenges, with $3.3bn in off-balance sheet content liabilities and only around $1bn in cash. As for producing further fresh content: House of Cards cost around $100m to produce. At that sort of cost, do not expect too many headline grabbing productions of that calibre to follow any time soon.

One other thing jumps out from the first quarter Netflix results and that is how way out the performance of the firm is compared to the management predictions. If the firms own management finds it so hard to predict its performance, heaven knows how the analyst community will get on in their forecasts.

Investors may get lucky and Netflix could be an acquisition target for an Apple or a Microsoft in the coming months. On the other hand, the shares are wildly volatile; not shares one would suggest for savings put away for a rainy day.

Photograph: Getty Images

Douglas Blakey is the editor of Retail Banker International

Photo: Getty
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Who will win the Copeland by-election?

Labour face a tricky task in holding onto the seat. 

What’s the Copeland by-election about? That’s the question that will decide who wins it.

The Conservatives want it to be about the nuclear industry, which is the seat’s biggest employer, and Jeremy Corbyn’s long history of opposition to nuclear power.

Labour want it to be about the difficulties of the NHS in Cumbria in general and the future of West Cumberland Hospital in particular.

Who’s winning? Neither party is confident of victory but both sides think it will be close. That Theresa May has visited is a sign of the confidence in Conservative headquarters that, win or lose, Labour will not increase its majority from the six-point lead it held over the Conservatives in May 2015. (It’s always more instructive to talk about vote share rather than raw numbers, in by-elections in particular.)

But her visit may have been counterproductive. Yes, she is the most popular politician in Britain according to all the polls, but in visiting she has added fuel to the fire of Labour’s message that the Conservatives are keeping an anxious eye on the outcome.

Labour strategists feared that “the oxygen” would come out of the campaign if May used her visit to offer a guarantee about West Cumberland Hospital. Instead, she refused to answer, merely hyping up the issue further.

The party is nervous that opposition to Corbyn is going to supress turnout among their voters, but on the Conservative side, there is considerable irritation that May’s visit has made their task harder, too.

Voters know the difference between a by-election and a general election and my hunch is that people will get they can have a free hit on the health question without risking the future of the nuclear factory. That Corbyn has U-Turned on nuclear power only helps.

I said last week that if I knew what the local paper would look like between now and then I would be able to call the outcome. Today the West Cumbria News & Star leads with Downing Street’s refusal to answer questions about West Cumberland Hospital. All the signs favour Labour. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.