• Comments on Rethinking Netflix Regency

    Some readers disagreed with Insider’s skeptical post Monday about the Netflix Regency billboard purchase:

    Billboard valuation expert Paul Wright is bullish:

    We looked at OOH rates on Sunset last year and you’d be surprised by what we found. Wallscape rates ranged between $110,000 and $220,000 per four week period. Regency’s Vinyl Bulletin rates ranged between $36,600 and $55,000, but other operators had rates between $11,000 and $95,000 per four week period. This is one reason that your ROI might be a bit low.

    The other reason would be that Netflix will have a reversion at the end of the 15 years. This simply means that they will have something of value to sell in the future. Their return on investment calculation should include the idea that there will be something of value at the end of the holding period. Whether the value is $150 million in 15 years remains to be seen, but most investors would make some estimate for a reversion value.

    We think that this was a great strategic move that would pay reasonable dividends for the typical investor and will provide Netflix with intangible brand awareness and goodwill with their target actor, writer, director and producer audience.

    Bobby Aguilera, VP Sales, All Points Media agrees:

    I love the move.  Why rent when you can own?  They have the money and they’re not quickly depreciating assets.

    A billboard company employee thinks the transaction may be a better deal than appears:

    I hear people mentioning what the rates for wallscapes and what Regency’s rates are for a 4 week period and why rent when you can own but some things people are not thinking about:  (1) Leases in prime markets like L.A tend to be shorter in length which reduces the ROI when those leases are cancelled.  (2) While the 4 week contracts are higher in gross rate, leases in prime markets like L.A have enormous lease costs, if a 4 week rate is $36,000, it’s not out of the question that the lease rent is $20,000 or more per month meaning Netflix paid 150 million for the assets but they will have substantial on going monthly costs to the landowners, not to mention maintenance and illumination costs.

    Once you figure those costs in, all Netflix did was essentially buy a discounted 4 week rate.

    Randy Burkett of Burkett Outdoor was skeptical about the transaction:

    Great way to feed the egos of Hollywood but financially makes no sense. I have wondered why companies like Apple who are sitting on boat loads of cash have not entered the business.

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