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Netflix’s Success Only Makes It Burn More Cash




Netflix (NASDAQ:NFLX) isn’t shy about discussing how much cash it burns. It’s been free cash flow negative for a few years now, and management wrote, “[W]e expect to be FCF negative for many years” in its second-quarter letter to shareholders. In a recent interview at the Goldman Sachs Communicopia Conference, CFO David Wells reiterated that statement. He added that the more successful Netflix is, the longer it plans to burn cash.

Netflix’s ongoing cash burn means it will continue to pile up debt. And it’s paying a premium on that debt, since it’s already carrying a relatively high debt-to-EBITDA ratio. Considering Netflix doesn’t plan to increase EBITDA anytime in the near future, it’s going to continue racking up interest expenses to fund its growth.

Original content is to blame
Wells said the company could produce positive free cash flow, or at least be close to it, if it licensed its original programming instead of financing it. Indeed, before Netflix dove headlong into original content, it occasionally produced positive free cash flow. Even its quarters of cash burn were relatively modest — $50 million here, $20 million there. Now it’s burning $2 billion to $2.5 billion per year.

But Wells says there are a couple of major advantages to producing content in-house despite the fact that it costs the company more upfront. First, it allows for better long-term economics by removing the profits of the production company. That may be why Netflix claims originals are some of its most efficient content spend. Second, Netflix obtains better control over the content and intellectual property rights, allowing it to distribute the productions globally.

So even with Netflix’s high interest rates on its bond issues, it might be saving money in the long run by financing productions itself and removing the middleman.

Spending won’t slow down until user growth does
Wells told the audience at Communicopia, “The faster we grow, the more we’re going to reinvest in content.” And that only makes sense. Netflix’s originals are perhaps the biggest driving factor behind its subscriber growth. As the company expands globally, producing originals in-house is the most efficient way to secure global rights.

Right now, the incremental cost of adding another subscriber is less than the previous one, as Wells put it. Netflix is still benefiting from increased scale as subscriber growth outpaces content spend. The company had its biggest second quarter this year, adding 5.2 million global subscribers.

Eventually that won’t be the case anymore. If Netflix wants to reach another subscriber it’ll have to invest more than it’s worth in content. But management believes it still has a long way to go before it reaches that point. It maintains the addressable market in the U.S. is 60 million to 90 million subscribers. It currently has 50 million. Globally, the opportunity is even bigger, and Netflix has yet to surpass the subscriber count of the U.S. in its international markets.

Raising debt and burning cash
Netflix says it will continue tapping the debt market to fund the capital needs of its original productions. Despite its poor ratings from credit agencies, Wells says he’s fine with the company’s position. Management isn’t going to sacrifice the company’s growth to get its bonds to investment grade, he said.

The important thing for investors to remember, though, is that Netflix is completely in control of how much it spends on content. If the growth isn’t there, it’s not going to spend more. Even with a bunch of new content buyers in the market, Wells says it won’t impact the company’s budget. Netflix will just produce fewer shows if it has to.

That said, he likened the content market to the professional athlete market. Top-notch performers are seeing bigger and bigger contracts, but replacement-level players might see their average salary go down. If anyone is capable of finding diamonds in the rough, it’s Netflix and its troves of data.

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Dockless bike share pilot to begin in July





Sometimes it pays to wait. Two neighorhoods that never made it onto Citi Bike’s map will get first crack at the next generation of bike shares—the dockless bike—Mayor Bill de Blasio announced on Thursday.

A total of 12 dockless bike-share operators will take part in the pilot, which is being run by the Department of Transportation. It will begin in July in the Rockaways in Queens and Coney Island in Brooklyn. (Rockaway Beach was the scene last year of a so called rogue operation by a company, Spin, that will be taking part in the pilot program.)

Later in the summer, the program will roll out to neighborhoods in two boroughs that have never seen bike-sharing: the Bronx, in the area around Fordham University, and Staten Island, on its North Shore.

Rides will cost from $1 to $2 for 30 minutes.

Dockless operations can be launched quickly, as they do not require the installation of parking stations.

The program will include pedal-assist e-bikes. The city is currently clarifying the legal status of the bikes.

There will be a total of 200 bikes in each of the four zones. The pilot program will be assessed in the fall.


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Embarrassment for The New York Times after failed hit piece needs four major corrections




new york times

The New York Times issued four different corrections to an antagonistic, failed hit piece on Foundation for Defense of Democracies CEO Mark Dubowitz, who once opposed President Barack Obama’s Iran nuclear pact.

The embarrassing article falsely claimed that Dubowitz “paid himself” nearly twice as much as his think-tank peers; that the FDD is linked to Israel’s Likud Party; and that a Republican donor with financial ties to the Emirates provided $2.7 million to fund an anti-Qatar conference.

None of those things are true.

The Times issued a lengthy correction explaining that a board of directors determined Dubowitz’s compensation, which is on par with other think-tank leaders; that the FDD is not directly involved with the Likud Party; and that donor Elliott Broidy gave $360,000 for the conference.

“What’s left after the corrections is a dispatch about a think-tank exec with no genuine public-policy power who originally opposed the Iran deal, thought he could convince Trump to mend it without ending it, and is now getting flak from fever-swamp leftists who didn’t like his original opposition,” Media Research Center contributing editor Tom Blumer wrote. “Why was this even a story in the first place?”
Blumer pointed out that, in addition to the four errors, it is hard to ignore the “hostility” that Times international diplomacy reporter Gardiner Harris apparently has toward Dubowitz and the FDD. The May 13 piece headlined, “He Was a Tireless Critic of the Iran Deal. Now He Insists He Wanted to Save It,” mentions Dubowitz “wears tailored French suits and keeps his curly hair just so.”
Blumer asked, “Who except an angry, jealous, agenda-driven reporter would care about ‘tailored French suits’ and ‘keeping his curly hair just so’?”

The FDD is a non-profit group that bills itself as a non-partisan group with a “mission to promote pluralism, defend democratic values and fight the ideologies that drive terrorism.” Dubowitz, the group’s leader, was a robust adversary of Obama’s Iran nuclear deal back in 2015 but tried to save portions of it before President Trump announced that the United States would pull out. Harris apparently isn’t a fan of Dubowitz’s evolving position, as he attacked the FDD leader with a plethora of misinformation.

MRC’s Blumer wrote that the piece is “uniquely embarrassing” because of the “sheer volume” of embarrassing gaffes in addition to “how easy it should have been for his editors to catch them.”

The entire correction states: “An article on Monday about Mark Dubowitz, the chief executive of the Foundation for Defense of Democracies, and his perspective on nuclear negotiations with Iran referred imprecisely to Mr. Dubowitz’s salary as compared with those of leaders of other Washington think tanks. Mr. Dubowitz’s $560,221 compensation in 2016 was determined by the foundation’s board of directors and is commensurate with the average annual salary of other think-tank leaders in Washington in recent years. It is not nearly twice as much as the salaries of his counterparts. The article also inaccurately linked the foundation to Israel’s Likud party. While the think tank does align with some of Likud’s positions, it is not directly involved with the party. The article also referred imprecisely to the funding of conferences held by the foundation and the Hudson Institute. While Elliott Broidy provided $2.7 million in funds for consulting, marketing and other services, the foundation says it received only $360,000 from Mr. Broidy for one conference.”


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Family fears worst after cash-strapped cabbied goes missing




new york taxi

Family and friends are fearing the worst after a financially reeling cabbie left his car by the East River 10 days ago and has yet to be heard from since.

Yumain “Kenny” Chow, 56, was last seen on May 11 — and had been stressed about a $700,000 mortgage on his taxi medallion that he couldn’t pay off, say those close to him.

“He was very upset about the mortgage on his medallion and the mortgage on his house and not being able to provide for his family,” said his brother, Richard Chow.

Kenny Chow, who moved to the US from Burma when he was in his 20s, bought his medallion in 2011 when rates were at a record high and just before Uber and other rideshare app companies moved into the New York City market, his brother said.

The cabbie’s loan was through Melrose Credit Union, a company that is under federal receivership and has become known for its aggressive tactics against its borrowers.

At least four for-hire drivers have committed suicide in the past six months.

Cabbies blame the city for allowing app-based ride services such as Uber and Lyft to expand unchecked and gobble up traditional drivers’ customers — which has led to desperation among drivers.

“It’s such a sign of the times,” said New York Taxi Workers Alliance Executive Director Bhairavi Desai. “In years past, if a driver was missing, you’d fear murder or assault, now you fear suicide. There is such a dark cloud over them. Every day, drivers are struggling with poverty, and each day the future looks bleaker.”

Chow and his wife were in such dire financial straights that they couldn’t pay for their daughter to go to college and she had to return home, said friend and fellow cab driver Johnny Ho. And Chow’s wife was recently diagnosed with cancer.

His car was found on 86th Street and East End Avenue, which is just a block from the East River.

Cops confirmed that Chow’s family filed a missing-person report May 12 and that they found his vehicle but no sign of the cabbie.


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