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Here's the hole in your logic: even if Netflix has no desire to operate a particular business anymore (despite presumed profitability), if the business was, in
by solatic 3y ago
Here's the hole in your logic: even if Netflix has no desire to operate a particular business anymore (despite presumed profitability), if the business was, in the general sense, desirable (i.e. because profitability), then it would be worthwhile to Netflix to simply sell the business to another entity. Surely, for a desirable business, Netflix should be able to find a buyer for $1 or higher. That would let Netflix liquidate the asset / business while keeping the business running.
Tech industry economics are besides the point. Suppose tech industry economics expects (for the sake of argument, insanely) an internal rate of return of 300% on every dollar spent, while the IRR of the disc business is some measly fraction of that. By liquidating the disc business, Netflix gets to take whatever proceeds from the liquidation - even if it's only $1 - and put it towards other internal usages that it expects that 300% IRR from.
A price like $1 is so small that, presumably, you would go to whoever the current salaried worker is responsible for managing the disc business, offer them ownership for $1, and the manager-worker would happily take the opportunity to become a manager-owner of the desirable business that employs him at a price that anyone could afford.
Of course, in the real world, there are various costs involved. So presumably, (a) the costs associated with liquidation are lower than the costs associated with spinning off the disc business, and (b) whatever the cost associated with spinning off the disc business, no buyer could be found for at least the sum of that cost plus $1; that such costs are indeed above what the salaried manager-worker of the current disc business could afford.
Maybe that's bullshit, maybe not, I don't understand enough about Netflix's disc business to know. But Hanlon's Razor is the better guide here. Either Netflix's board is going where the money is leading them to go, or they're leaving money on the table for malicious reasons, and the second doesn't make sense since it would expose them to shareholder lawsuits.
- jstanley 3y agoEither the board knows something we don't know, or they're actively malicious? Are those the only 2 options? What if the board is just too busy, or mistaken, or stupid?
- solatic 3y agoToo busy: what typically happens is that the concern of the spin-off of the disc business would be delegated to one / a few board members whose responsibility would be to examine the issue and make a recommendation to the rest of the board. The board member(s) themselves are rarely the people doing the analysis of the options; instead they delegate to salaried workers (either of Netflix, a contractor, or working directly for the board member) who do the legwork. So the amount of time that a board member themself will spend on the deal is either zero (they're not a member of the committee responsible for sourcing the recommendations) or fairly minimal. Mistaken is another form of stupid. And do you really think you get to be on the board of a ~$168 billion market cap public company by being stupid?
- jstanley 3y agoIt is possible for them to make suboptimal decisions without being actively malicious.
- shawabawa3 3y ago> And do you really think you get to be on the board of a ~$168 billion market cap public company by being stupid? No but i don't think you necessarily get there by being intelligent either. Board seats are traded as favours and nepotism all the time
- checkyoursudo 3y agoI know quite a lot of board members of various companies from my days as a lawyer. High intelligence is rarely a requirement. Maybe most aren't stupid, but more are more lucky than they are particularly smart. A non-trivial number of boards have run great companies right into the ground, or at least been too stupid or cowardly to stop it from happening.
- solatic 3y agoBoards of private companies or public companies with $168 billion market caps? Private companies, sure. Boards of private companies often have an iron grip on shareholders and are often unaccountable. But the boards of public companies need to worry about shareholder activists, hostile takeovers, shareholder lawsuits. The margin of error to keep outright stupid, corrupt, nepotists is much smaller on large public company boards.
- gnomewascool 3y agoSuch a disc-renting business would be a competitor to Netflix, both directly (especially in the hands of somebody who tried to focus on it, rather than reluctantly maintaining it, as Netflix has been doing recently) or because it could eventually try to repeat Netflix's own pivot into streaming. Consequently, selling it off would be rather risky. The start-up costs and need of name-recognition are probably sufficient that it'd be hard for a new company try to fill this niche, but if they bought Netflix's distribution network they could likely manage.
- siva7 3y agoIt's not 2000 anymore. This strategy can't be repeated anymore as it depends on the environment being the same as 20 years ago.
- alephnerd 3y ago> then it would be worthwhile to Netflix to simply sell the business to another entity This assumes there was a buyer who was able to pay. As someone who has worked on this kind of stuff, I guarantee the leadership team at Netflix considered and did their due diligence, but didn't find a satisfactory buyer or didn't even find a buyer.
- kylebenzle 3y agoFrom the marketing perspective it might look bad too if another company took over and did well. As long as Netflix is a FANG there will be little incentive for them to take risks with their brand.