Redbox Fully loaded: Can Netflix Stay 1-Step Ahead ?

Redbox unearthed the details of a joint venture with Verizon Communication, which delivers the required infrastructure for streaming video service at (you guessed it) $8 per month, under the brand name, “Redbox Instant”. Although, this exciting new business division does not include movie downloads as yet. The anticipated venture comes on the heels of their announcement in March that it purchased NCR’s entertainment division for $100 million, hammering the nail in the Blockbuster Express coffin. Kudos to Redbox for its successful execution of its expansion plan, that brings them to a head-to-head competition with the Market Leader, Netflix.
You may recall the of Summer of 2011, when Netflix's CEO (Reed Hastings) made the grave mistake of announcing their brilliant plan to separate the DVD Rental and Streaming Video business into two revenue streams. Charging $8.00 per month for each – essentially doubling the cost for customers who were enjoying access to both for only $8. The ill-fated plan was announced one moment and denounced the next, as customers made their feelings of disgust known. A mass exodus of 800,000 customers within a matter of weeks was an undeniable message to the business community that the Customer is Boss. By October, in response to the backlash, Hastings apologized to customers. He announced that the company decided not to separate the services for now, adding that they were moving too fast.

Netflix reported a loss of 800,000 subscribers in the 3rd quarter of 2011. Since Analysts predicted a loss of only 600,000, the market reacted unfavorably with a swiftly decline of over 20%. The company warned of more defections and stated that they anticipate losses for the first quarter of 2012 as a result of expanding their business to Europe. Netflix did not anticipate the fast and furious decline in market valuation, eroding their stock price from its highs The $305 per share in July 2011 to below $53 by September. By the year's end, Netflix has lost a million subscribers in the aftermath.

This costly business strategy turned out to be a public relations nightmare for Netflix, but an absolute dream for Redbox, waiting in the wings.

Using the Netflix business model, Redbox came onto the scene quietly, but well prepared to gradually scoop up stray Netflix customers. Then the Netflix blunder created a glorious opportunity or “gift” for any company poised to take advantage of it……. that company was Redbox. The gift translated into instant market share and name recognition, as news coverage of Netflix’s new strategy made reference to Redbox in just about every report.Jusk think; a sizable number of displaced Netflix customers were now searching the net for a comparable alternative to the DVD and streaming video service. Redbox scrapped-up stray, and disgruntled customers for the first 90 days following Nextflix’s announcement. It’s quite possible that Redbox pulled in the entire 4% market share Netflix lost.
As a business major in grad school, students learn a great deal about the world of business through reading piles of case studies and statistics about corporations that were successful versus those that folded. We learn that the fate and longevity of a product or service has a lot to do with originality or satisfying an underserved demand. In such a scenario, the first to enter the market with a new product idea or service is referred to as “Market Maker”, or “Market Leader”. The Market Leader holds an enormous advantage over those that follow in their footsteps. Research has shown that market leaders are likely to maintain the lion's share of the market for decades – unless the product or service becomes obsolete, such is the case (for example) with beepers. In keeping with this statistic, Netflix did eventually recover having lost 85% of their valuation, and approximately 4% of their business.
Nevertheless, the Netflix blunder, nearly two years ago, served to kick-start the new-comer, Redbox. As unhappy consumers fled Netflix, the gift of market share was well received and now Redbox is ready for a new challenge – Streaming videos.

By December of 2012, Redbox had increased its market share to 45%¸ up from 34% the previous year. Redbox’s founder Gregg Kaplan, leaves his post as President and COO, passing the role of President over to Anne Saunders, and Shawn Strickland as CEO of Redbox Instant - who will hopefully continue with equally successful leadership.
Well Netflix, “It is On”! You don’t have to be a market expert to conclude that this will be a battle for market share we haven’t seen since the early days of Coke and Pepsi. I look forward to the continued growth of Redbox, and hope the competition will inspire higher standards and consistently low prices. Redbox Instant, will be offered on the Roku box, and made available on Sony Playstation-4 consoles. Good luck Redbox, and may the force be with you!

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Employment Not As Rosy As You May Think

Although the unemployment rate has been below 8% since October, there seems to be a disconnect between what the government and media are telling us about how good things are with jobs and what is real.

There are job openings at a level not seen in years. However, the time it takes to fill a job has increased to 23 business days compared to 15 in mid-2009. Although the economy is improving, the reality is companies are reluctant to hire, holding up the process by making candidates interview over weeks or months, before a decision is made, if one is made at all.

“There’s a fear that the economy is going to go down again, so the message you get from C.F.O.’s is to be careful about hiring someone,” said John Sullivan, a management professor at San Francisco State University who runs a human resources consulting business. “There’s this great fear of making a mistake, of wasting money in a tight economy.” The result is an unreported hiring freeze that seems to be in place, especially for higher skilled workers.

“If you have an opening and are not sure about the economy, it’s pretty cheap to wait for a month or two,” said Nicholas Bloom, an economics professor at Stanford University. But in the aggregate, those little delays are stretching out the recovery process. “It’s like one of those horror movies, an economic Friday the 13th, where this recession never seems to die.”

Although job creation has improved over the last two years, it has little impact on the backlog of unemployed workers. Uncertainty, regarding the effect of fiscal policies in Washington adds to employer indecisiveness. In addition, employers want to make sure that workers who have been out of a job for months or years are up to date with current skills, said Robert Shimer, an economics professor at the University of Chicago, before they agree to on board a candidate.

Employers are under no pressure to hire – one reason as indicated in government labor reports, is high productivity. What this means is employees are working double and triple duty because employers are reluctant to hire additional staff. If they do, to lower labor costs, some companies have imported talent from abroad, especially in the technical fields, at much lower rates than their counterparts in the USA would normally command. In addition, outsourcing continues overseas, further reducing opportunities.

Until the psychological barriers are lifted regarding the fate of the economy and changes are made to reward companies who hire American workers, frustration may continue for quite some time, for domestically unemployed workers.

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A MARKET ON FIRE

Market hits record levels, finally settling above 2007 levels. Happy Days are here again! The better than expected Unemployment report for February boosted trading to yield a triple digit bump on the DOW index. With 236,000 jobs created in last month, the unemployment rate slips to 7.7%, making it the lowest rate since December 2008. February’s impressive turnout nearly doubled January’s total - making it the second best payroll growth in 12 months. Last month’s triumph may be second to November’s payroll growth - but it’s clearly a more significant milestone, given the political gridlock and sequestration anxiety.

There is no denying, the market is on fire. This begs the question: ”Does this mean we’re officially out of the woods with respect to our struggling economy?” Remarkably, of the trillions of dollars in investment capital that was either lost in declines or fled the market four years ago, it appears to have made its way back into the stock market. As for today, we have sufficiently surpassed the highs of 2007, but we’re looking at levels that bely the overall economic picture - particularly from the standpoint of government debt and anticipated spending cuts.

Market for 2013 is already yielding 10% growth, just in the first two months. We have seen 10% market growth for an entire year.

Is this a repeat of “irrational exuberance”? (a now famous phrase coined by former Federal Reserve Chairman Alan Greenspan). Perhaps you recall - not long after Greenspan warned that the over priced tech stocks was caused by irrational exuberance, the Dot Com bubble burst. This historic occurrence resulted in massive losses that sent investors running for cover. Billions of dollars in losses, rendered many of Silicon Valley’s young millionaires nearly broke. The state of the country’s economy was significantly more stable at that time, thus the Dot Com bust was not nearly as devastating as it could have been. Since the US economy (as it stands today) is still in a rather delicate state, regardless of the zealous market – it wouldn’t easily recover without collateral damage, and a possible slip back into a recession.

The economic indicators are mixed, but there ARE clear signs of stabilization. For example, Manufacturing industry is showing signs of growth, the Housing market is rebounding, and employers are finally feeling confident enough to hire. Nevertheless, the Stock Market is out pacing all indicators, and seemingly ignorant to political issues that threaten fiscal mayhem. Warren Buffet was quoted last week as saying “Markets are Stronger than Government”, and this has proven to be true. Hopefully, we’ve learned from our mistakes, and current market prices are based upon substantiated valuations. My optimism is tempered by reflection.

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Doin' the Twist: The Federal Reserve Steps in to Spur the Economy

In the beginning of the year, the Federal Reserve indicated their plan was to let the economy stand on its own. By the end of last month, however, the Feds broke down and reduced long-term interest rates in a program they refer to as Operation Twist. In this program, the Feds would drive down interest rates to encourage business activities, such as borrowing and hiring. According to a Wall Street Journal article by Peterson and Hilsenrath, the Federal Reserve officials announced that Operation Twist will be extended through the end of the year, but they’re “poised to do more”.

At the end of the 1st Quarter, the Feds indicated that there was no need for their help. The economic picture appeared brighter following a strong 4^th Quarter, and encouraging jobs report.

By the time the we turned the corner into the 2^nd Quarter, the economic storyline began to change amid heightened pressures from overseas. The market, which had anticipated S&P downgrades for Spain and France, could no longer withstand the push-back stemming from the European Union’s fiscal and political upheaval. Globalization has its rewards, but this isn’t one of them. When the EU sneezes, we are going to get the sniffles, as if the distance were non-existent.

As the Euro fiscal storm brewed, the dismal jobs report and Facebook IPO did its part to shrivel up any confidence Investors might have had left. The market uncertainty lingers, regardless of good economic news. This  depicts the profile of weary investors - possibly suffering from Post-Traumatic Stress Disorder.  Being the eternal optimist, I’m hoping Operation Twist will have us all dancing in the isles by the end of the year.

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Financial Fraud Strikes Again

Haven't we had enough of financial scandals? Of course not, here we go again. This time it is with a boutique futures trading broker - Peregrine Financial Group, also known as P.F.G.. On July 9, 2012, the National Futures Association (NFA) - the industry wide, self-regulatory organization for the U.S. futures industry, made an inquiry with U.S. Bank and learned that out of the $225 million in customer segregated funds that P.F.G. had reported to the NFA as being on deposit at the Bank just days earlier, only approximately $5 million was actually on deposit. The NFA also learned that, although P.F.G. submitted confirmations that U.S. Bank account balances as of February 2010 and March 2011, were reported to be approximately $207 million and $218 million, respectively, P.F.G.'s actual balances were less than $10 million for each one of these months.

On top of the reported financial fraud, a day earlier, the chairman and chief executive, Russell Wasendorf Sr., tried to commit suicide outside of the firm’s offices in Cedar Falls, Iowa .The Federal Bureau of Investigation is investigating the matter, according to a spokeswoman for the Omaha office, Sandy Breault. Ms. Breault indicated that the Chicago office of the agency might also get involved.

The Commodity Futures Trading Commission (C.F.T.C.) is seeking a restraining order against P.F.G., to prevent the destruction of any information that may be needed in the course of the investigation. The C.F.T.C. is also asking a federal court to appoint a receiver for the firm and freeze its assets.

This feels a lot like a curtain call for MF Global, where $1.6 Billion is still missing. (refer to a prior article in this blog for more information about MF Global). Similarly in this case, as the complaint states: “P.F.G. and Wasendorf have used customer funds for purposes other than those intended by its customers, and consequently, have misappropriated these funds”. “The whereabouts of the funds is currently unknown".

Needless to say, the operations of the firm have been halted. Unfotunately, I am one the many victims. For two years, I was an active futures trader with the company which offered  proprietary trading platforms to small retail customers like myself with unique and robust features that were not available from other brokerage houses. Although it has been several years since I day traded, due to time constraints, I still kept a funded account with P.F.G.. I contacted the NFA today and registered my name as an account holder. I urge all others affected to do the same. It may not amount to much but at least it is better to take some kind of action and to make your voice heard.

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Stimulus-Interuptus: Feds Take Away the Punch Bowl

The economic indicators are all signaling a stabilizing, recovering economy. However, the disappointing jobs report may indicate that we’re not quite ready to pop the Champaign. In a March meeting held by the Federal Reserve, the published minutes show the feds believe that the economy is strong enough to stand on its own. No need to intervene to help it along. In the meantime, the markets reacted in a bag way.

The market sell off last week, was a response to the Federal Reserve taking the position that the economy no longer needs their assistance, which means no “stimulus”. A Chief Market Analyst, Doug Cote, was quoted as saying that the Feds were “taking away the punch bowl, the markets don’t like these punch bowls being taken away”. You can glean from this statement that the economic punch bowls were heavily spiked over the past 4 years to get up to this point. In fact, since the beginning of the U.S. Deep Recession, the government worked feverishly to steer the economy away from the cliff it was headed for. This meant the Federal Reserve and the White House actively propping up the financial market and the economy by implementing a cocktail of fiscal and monetary policies, which included numerous rounds of stimulus packages for various faltering industries.

The Bush Administration, followed by the Obama Administration pulled out all the stops to get the Country back on solid footing with programs which included; the bailout of Banks and the big three auto makers, tax payers stimulus refund, the homeowners’ assistance and first home buyer programs, and even forgiveness of old student loans - the list goes on. Now, the market has to go “Cold turkey”, and function without a safety net. This was obviously an unpleasant reality when the news send trimmers throughout the investment community, sending the DOW and other major indices in a mild tailspin.

The next quarter will be a critical benchmark for forecasting where the economy actually is, and what that means for Main Street, and the rest of the world

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Blue Chips in the Red: Kodak

In the digital world of imaging, the hardest hit in this sector, which should come as no surprise, was Kodak. The Wall Street Journal reported that Kodak may be filing for bankruptcy protection in the months to come. In the past three years, Kodak has incurred losses in 9 out of 12 quarters. For the 3rd quarter of 2011, Kodak's losses were estimated at $222 million, which had investors running for cover. Needless to say, their stock fell sharply last year. Although the company stock began the year trading at $3.00, Kodak's shares are presently fluctuating below .50 cents. Consequently, the New York Stock Exchange warned that they will move to delist Kodak if their stock price remains below $1 for over 6 months. Kodak is not quite in the "red" yet, but if the company continues operating at the same rate of quarterly losses they experienced in the third quarter of 2011, it is only a matter of time.

I remember purchasing stock in the company when I was about 18 years old, and I must have paid over $40 a share. I sold my Kodak shares when the price dipped to $23.00. That's when I realized that I really didn't have the stomach for the trading the market.

The Iconic Blue Chip, which had been a in the forefront of the imaging products and supplies for over 130 years, has lost its grip on the cutting edge. The once stellar company is struggling to reinvent itself in the new age of camera phones, desktop publishing, , and the digital transport, upload and storage of images. Let's face it, when was the last time you bought film, or dropped off film to be developed? The impact of the ever-changing technical environment couldn't be more evident, as Kodak's valuation has suffered an 80 percent loss in the past 52 weeks. Clearly, digital advancements, and steep foreign competition has taken its toll on Kodak, making them look more like a dinosaur than a ever. By June of 2011, the company's year-end target of $1.6 -to- $1.7 billion was revised to $1.3 - to- $1.4 billion, as a reflection of their reduced expectations. The third quarter earnings report was a dismal account of continued losses, shrinking their cash reserves to $862 million, from $957 million in the 2nd quarter. As it stands, Kodak is sitting on only 10% reserves, well below standard practice.

To tell the whole story, or at least put the current events in perspective, the eminent day of reckoning began nearly 12 years ago, as the tides started to shift away of processing, printing and "developing" photo images. Resisting the digital revolution, or buying time, Kodak began giving away Free Film with every film development pick-up. This was a good, albeit temporary strategy to insure repeat business. The disposable cameras was a wonderful product with a short life span,(no pun intended) but it did help to sustain revenues, and as reasonable amount of cash flow while the CEO and the his think-tank tried to come up with new "relevant" products and services. Alas, this is going to be a fight for survival with much at stake, and Kodak was seemingly not up to the challenge - or is it? Whatever the case, in the past decade, Kodak lost 95% of its value to the industry competition which bought new age, digital savvy products to the market.
Part 1 of 2

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Corzine's Blind Ambition: In case of Emergency, Break Glass

MF Global Files for Bankruptcy, Corzine resigns and turns down a $12 million severance pay. Wall Street analysts already knew how over-loaded the company was with Euro debt, so it was not a surprise outcome, by any means. However, as the story began to unfold and the facts surrounding the collapse started to unravel, suspicion grew about the probability of foul play. There were more questions than answers, and that's always a red flag. Once customer funds were discovered missing, and an SEC investigation revealed that a large sum of money was transferred into an account overseas, just two days before MF Global filed for bankruptcy, it was clear that something was terribly wrong here.

For the second time in December, Jon Corzine, former head of the now defunct MF Global, met with the senate to further explain his involvement with the missing customer funds. This time, he was accompanied by two MF Global executives, COO, Bradley Abelow and CFO, Henri Steenkamp, who also claimed to know nothing about the money. I find this very curious, since most brokerage firms have policies in place that limit check writing and transfer-of-money authority to upper management, with additional authorization from the CFO, or Treasurer in his or her absence. The Senate hearing did not turn up anything that would satisfy investigators or investors. Nevertheless frustrated Farmers (primary investors in land commodities) were able to voice their disdain for MF Global, and one in particular was quoted as saying "What they call 'unlawful comingling' on Wall Street is called 'stealing' back on Main Street,"

Jon Corzine admitted that there was a "break glass" contingency plan in place, but did not disclose the details of the emergency plan. After questions intensified, he denied that raiding the customer funds was one of the recommendations in the emergency plan. According to Corzine, he did not know what happened to the money, and proclaims that he did not direct anyone to misuse customer funds. Corzine tried his best to convince the Senate Agricultural Committee that he did not "intend" to break any rules concerning the handling of customer funds, with respect to keeping customer funds segregated from the firm's money. This is reference to the requirement of all commodities and futures trading firms to segregate customer funds from company money. According to the CMEgroup.com, (Watchdog for Commodities and Futures Industry) segregating the funds protects investors in the event of defaults or bankruptcy. This regulation has a major advantage for investors, because when a company files for bankruptcy (as in the case of MF Global) , investors are last on the list, behind creditors, to see any of their money - particularly because it's next to impossible to identify how much of the company's assets belongs to the customers. Segregated funds facilitate the process of identifying which accounts belong to investors, thus investors will be able to recoup their funds without much delay. Apparently the "Segregation of Funds" regulation was not practiced at MF Global. Corzine went so far as to explain that perhaps an employee misinterpreted his instructions in an effort to try to save the company. The former CEO conveyed to the Senate subcommittee that he was not aware of any problem with segregated funds until October 30th, the day before they filed for bankruptcy.

In a new twist to this already redundant story of fraud, greed and entitlement, the Federal Authorities investigating the collapse of MF Global are now turning their attention toward one of the Wall Street watchdogs. Since MF Global was a Commodities brokerage firm, their primary regulator should have been the CME Group. The Commodities Futures and Exchange Commission is leading the investigation to examine CME's conduct before MF Global filed for bankruptcy protection. If the CME Group is the commodities regulator safeguarding customer’s money, what were they doing instead?

The downfall of MF Global (and Corzine’s career) is yet another display of Wall Street greed and deception. The bottom line is, Corzine should be held accountable regardless of whether or not he "directed" anyone to move funds. In his effort to exonerate an employee, he painted a vivid picture of the company culture. The firm's inattention to compliance, without regard for their customers" protection is inexcusable. As I've stated previously in an article concerning Corzine and MF Global, the fact that he turned down the severance pay is almost an admission of guilt for some aspect of the company's downfall. I’ll continue watching this case closely to see where the investigation of the CME Group and the search for the missing $1.2 billion leads. Fortunately, the Wall Street Journal reported that the judge overseeing the bankruptcy case has approved $4.1 billion to be returned to the customers, of which $2.2 billion in frozen customer accounts will be released.

Cohn-Reilly Report posted an article about the obvious under story of misguided ambitions of Jon Corzine, prior to the reports of mission funds. Corzine’s blind Ambition

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