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Netflix  (NASDAQ: NFLX), battling with an aggressive marketing campaign from competitor Blockbuster, reported Q1 earnings slightly below expectations and reduced its outlook for the year.

Revenue was up 36% to $305.3m but earnings fell in 2cents below estimates.  The company earned 14cents a share ($9.9m) for the quarter, up substantially from 7 cents a share ($4.4m) for the same period last year.

There were 6.8m total subscribers but churn (customer cancellations) increased to 4.4% from 3.9%in the 4th Quarter

Guidance was adjusted downward to fiscal year revenue of $1.21b to $1.26b, off initial estimates of $1.25-$1.30b and analysts consensus (Thompson) of 41.29b

More detailed press coverage on Netflix’ finances can be found at:

Yahoo Finance
Google Finance
Marketwatch

Business in Silicon Valley generally tends to be done quickly.   There’s a tendency to jump into things head first, even sometimes blindfolded.  It’s the nature of high tech and the entrepreneurial culture.

In Hollywood business tends to be done more slowly.  There’s lunch before dinner, coffee before dessert.  The process involves more relationship building.  It’s a tendency to move moderately. To make changes judiciously.  It’s a process of testing the waters, sticking a toe in, then a foot, before jumping ahead.  Major media, as the occasional joke goes, likes a lot of foreplay, it likes to date for a good while before getting intimate. 

Apple has been a patient suitor, and the rewards are starting to show. Yesterday, Apple  and MGM announced that films from the Metro-Goldwyn-Mayer library, which includes the Rocky franchise and a wide range of generation spanning classics, will be available on iTunes.

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Today, Comcast announced it had reached an agreement to acquire movie-ticketing site Fandango. While the deal size was not deemed "material" relative to Comcast’s financial’s and therefore doesn’t require disclosure, it’s likely the purchase prices falls in or near the range of $165m to $180m. That price is estimated based in part on estimated fees from usage (with unique usage numbers used as reported by Comscore) and in part, relative to the multiples (relative to estimated revenue and usage) applied to eBay’s purchase of concert and sports event ticket-seller Stubhub. ( Stubhub sold for $310m earlier this year).

More specifically, the estimated price uses calculations that try to consider i. an estimated closing rate (e.g. what percentage of unique customers complete transactions versus those at the site to just browse concert ticket prices (at Stubhub) or check movie times (at Fandango); ii. recognition that Stubhub sells concert and event tickets for prices of 5x to 10x typical movie tickets and that generates substantially higher fees per transaction than the $1/ticket service fee at Fandango; and iii. that Stubhubs smaller monthly visitor number decreases their share of ad revenue and total transaction volume.

Fandango, which was founded in 2000 by a consortium of movie distributors and investors, sells tickets for more than 1,300 Theaters. Over the past year, Fandango has been fighting with Movietickets.com for the title of being the most-visited online movie-ticket seller (AOL’s Moviefone which does provide links for ticket sales has far greater usage numbers but is not included in the category). In December ‘06, Fandango had approximately 5.8m unique visitors. In February, a slightly slower month in the cyclical movie industry, Fandango had 3.8m unique visitors who generated approximately 39m page views (according to Comscore statistics).

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Auctions can be efficient, but they don’t work for everything.  Especially if the sellers see value for themselves in the inefficiency.    That was the message today delivered to eBay from a group of Cable TV networks. 

Discovery Channel, ESPN, Lifetime,  A&E and other national cable television channels announced that they would not participate in an eBay test product to sell advertising slots by auction. 

eBay apparently learned it was being dumped via a press release, the corporate equivalent of a “Dear John” text message.   Sean Cunningham, chief executive of the Cable TV Advertising Bureau (the trade group which was representing the networks), offered little sentimentality in his words.  He said “we were underwhelmed by what we saw on the system and underwhelmed by eBay’s knowledge of our business.”  He further added “We don’t believe that eBay is going to get this right.”

eBay had been working with a group of large advertisers since last year to build the advertising exchange.  Members of the group included HP, Home Depot, Philips Electronics and Toyota. They had pledged to spend $50m of their advertising budgets through the exchange over the next year.

The automated nature of the eBay exchange was criticized, in part, for removing some of the human element from the media buys. Mr. Cunningham said it "lacked the provisions necessary for capturing critical strategy and idea-driven intelligence during a buy." Click to Read More

In the animation world, Pixar has been king for the past decade.  After spinning off from  Lucas Film in 1985, being bought by Steve Jobs, and eventually going public, the company found its footing in the mid 90’s and became a dominant player in CGI animation.  Pixar’s string of hits started with Toy Story in 1995, and has followed with commercial and licensing successes for nearly all its major releases since:  A Bugs Life in 1998, Toy Story 2 in 1999, Monsters Inc in 2001, Finding Nemo in 2003, The Incredibles in 2004, Cars in 2006 and more on the way.

On January 31st, Ed Catmull co-founder and former President of Pixar, one time CTO of Pixar and now head of the joint Pixar Disney Animation Studio (following Disney’s $7.4b acquisition of Pixar last year) spoke at Stanford’s Graduate School of Business Entrepreneurship Conference.  

In his presentation, Dr. Catmull spoke about process and culture at Pixar; Effectively, things that are part of the company’s recipe for success that have been learned with trial and error.  Many of these points, along with others made in an interview with some students (found here) translate across business markets and seem smart managerial practice. 

While he gave the speech some time ago now, there are 4 management lessons I took from his speech and interview which  I’ve been wanting to put to paper:

Look for what’s wrong, not just what’s right:

Early on, Pixar created a structure with programmers, animators and producers that differed from standard practice in the industry.  The thought was a more equal peer system coupled with an “open door” “easy access” process would make for a healthy culture.  Turned out, there were problems lurking and they were almost missed. 

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High profile executives aren’t unlike many professional athletes when it comes to retirement; neither stay quiet for long.   It doesn’t matter whether departure was voluntary or forced, or whether success was motivated by love of the game, or the ego stimulation of being a celebrity.  The thrill of competition and the excitement of a big deal are powerful stimulants and tempting lures.

On September 30, 2005 Michael Eisner resigned from Disney a year before his contract expired.  Mr. Eisner seems to have spent much of the time since doing the corporate equivalent of autograph signings: he’s been a fixture on high profile speaking tours.  He’s also been host of his own MSNBC talk show.

It now looks like Eisner is quietly setting the stage to get back into the game through his current business entity The Tornante Company.   The small, Beverley Hills based, company seems to be something of a private equity firm focusing on New Media and Entertainment properties.  (Whether Tornante is capitalized solely by Eisner, or with other investors is unclear.)

Since April 2006, Tornante has made two publicly announced deals. Click to Read More

To prepare for a ramp-up in production, and meet an internal goal of one film every 8 to 12 months, Imagi Studios has begun assembling a team of experienced Hollywood animation professionals to guide its Hong Kong animation staff (which includes approximately 400 animators and staff).

Brett Feeney whose resume includes Happy Feet and the Matrix Reloaded was hired to work in Hong Kong as Vice President of Production.

Cecil Kramer, whose credits include Shrek, Antz and the Prince of Egypt will be the Executive VP of Production and oversee creative from LA.  Ms. Kramer was formerly the co-head of production at DreamWorks Animation.

Maryanne Granger, a colleague of Ms Kramer’s from DreamWorks (DWA) will join the team to head production for Imagi’s title “Astroboy.”  Lynne Southerland, co-director of Mulan 2 will be the producer for Gatchaman, Imagi’s other in-development title (due in 2008).

The hiring’s mark  an aggressive growth plan being implemented by Douglas Glen, who was hired to lead the company in September.  At the core of the strategy (which I speculated on here) is the use of facilities Click to Read More