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3 O'Clock High: Minyanville Mailbag

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"Is it 2006 yet?"

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Coming back to earth with a long-overdue Minyanville Mailbag:

Minyan Kevin "Call me Jeff" McKay writes:

I just read an article that said 10% of the estimated number of consoles sold were on eBay (EBAY).

Why wouldn't Microsoft (MSFT) take 25% of its production and just sell them as a Dutch auction on eBay, just letting them go to the highest bidder? I realize that by selling the inventory to Target (TGT), the inventory leaves Microsoft's balance sheet. But when the product is hot and the risk of them not selling is small, wouldn't that make sense?

For that matter, why wouldn't anyone with a hot product do that?

Microsoft has been dishing xBox360's to retailers the way Bugsy Siegel gave out shares of the Flamingo. While an eBay auction would almost certainly get a lot of attention, most of it favorable in an unwittingly ironic way, it would also:

a) Infuriate all the retailers who are having to send would-be customers home empty handed b/c Microsoft hyped a product they can't really deliver.

b) Enrage, if not the actual gamers themselves, the parents who would be emotionally on the hook for a 360 that they thought was $299 but is actually $399, full retail, and priced at $600, in reality (where things actually get bought and sold).

c) Highlight Microsoft's roll-out of the xBox which has to be considered "curious" if not grotesquely bungled. Wasn't there just a bit of an overspend on the hype when the product has been out of stock since literally hours after release? What price was Microsoft placing on beating Sony (SNE) to market?

If the thought process was "Sony won the last console war because the PS2 beat the Xbox to market" then Microsoft has made a fairly expensive logical mistake. The time gap between release of the new consoles will be much closer than the last round, when Sony had a multi-year lead. The PS3 will be out in '06 and is looking be the technical match (and then some) of the 360.

In a long term fight, why create so much ill-will as an opening move? Microsoft doesn't have a problem with demand or media attention for the 360. They have production and promotional coherence problems, both of which would be exacerbated by selling to eBay.

Minyan "Mod" Rod writes:

A buddy of mine has been negative on NetFlix (NFLX) for a while. He thinks it's worth about $16 per share. Any thoughts?

I'm not really sure what NetFlix is actually worth. The changes over the next 10 years in what is now NetFlix core business are certain to be "Large." Beyond that, I frankly don't think anyone can put together the various, and wildly different, possible courses in the entertainment rental biz in a way that allows for coming up with useful valuation estimates.

Which isn't to say I don't occasionally trade it. I do. I just do so based on two larger themes: 1. NFLX is a wildly emotional stock with a huge short base 2. Blockbuster (BBI) is still alive to make NetFlix look good, by comparison.

I think NFLX is too hard and generally crowded, as a short. From the long side, despite Blockbuster's persistent existence, the dirth of hit movies in '05 is going to keep anyone from getting too excited about any of the movie retailers.

No positions in stocks mentioned.

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