In the early 2000s, in one of my original attempts at angel investing, I was a partner in a UK clone of American DVD rental company, Netflix. We got off to a good start but needed more capital, which was harder to find back then. I persuaded Stelios Haji-Ioannou, the founder of budget airline easyJet, to inject additional capital, but the deal fell through. The business was eventually sold to LoveFilm before it was in turn bought by Amazon.
I should have just bought Netflix stock. It would have been easier and, had I held it, far more profitable. Today, I am a Netflix customer and a great admirer of Reed Hastings, the co-founder and chairman, but I have had differences with the company – and one of its major backers – over its accounting for content. I originally looked at this two years ago and think it is timely to revisit now that spending on content is increasing again.
I believe that Netflix has been becoming less conservative in its accounting for some time and that its method of amortising content could be inflating earnings.