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Jim:       Head scratcher for Iger.. that sounds like a great challenge for me… so I decided it was my mission to try to solve this conundrum… this puzzle… where did the DVD buyers go… and the answer from what I can tell from the simultaneous explosion upward in Netflix, Inc. (NFLX) demand… is that they have switched to be buyers of DVD’s to be renters of DVD’s… people just don’t feel the need to own the movies anymore… they want to rent them… I think the American public has decided to buy a DVD for $14 in this tough economy… is no longer considered a bargain… and they are getting hooked on other ways… people may want to own songs… Iger made this point… because they can play them over and over and over again… but they don’t want to own movies anymore… Disney is probably the last to see this… as their movies are the kind that you play over and over and over again…. because sometimes you need a DVD just so the kids don’t drive you nuts… and sometimes they just like to see them so much that they keep asking for them… how do I know this… I have personally seen Snow White and the Seven Dwarfs 753 times… I have also watched Bedknobs and Broomsticks 387 times… just to watch Angela Lansbury alienate the Nazis… even though I liked here much more as the homicidal communist programming mother in the Mentoring Candidate.

Now, before I can come out and recommend Netflix…you need to know that this stock is a war zone between the longs and the shorts… it is the stock market version of Verdon, or Caralon, if you want a bloody US one… and Netflix is also a stock that I have gotten wrong endlessly… the last time I said something about it was on October 23rd during the Lightning Round when the stock was at $20.79... I was very negative on Netflix… and since then Netflix is up 80%… so tonight I am going to do what I used to do at my old hedge fund.. I am going to put the sticky note on my forehead… that is right… I am going to own up to my numerous whiffs on this stock… and tell you … to eat a whole lot of crow… and tell you, yes I like Netflix… but I think you want the pullback before you buy… there is a strong correlation between the strength of Netflix and the weakness of Disney… Netflix appeals to those who want to stay at home during in this weak economy… instead of leaving their home and having to pay for gas, and parking, and a $12 movie ticket to boot…why would people do that when they can pay Netflix $8.99 a month to access unlimited movies… and unlimited streaming movies too… you can get 30 Disney DVDs a month for less than $10... and you can also watch movies and TV shows online… this may be the ultimate recession play… when I didn’t like it at $20... I didn’t see the recession play coming… which is why I have got to eat a little crow… tasted better last time… last time I had it with a little mustard… I think it was the mustard that made it taste better.

That is the other side of Netflix… it is not just people going for the most convenient form of DVD rental… it is also people moving beyond DVDs and switching to streaming movies online…as part of that $8.99 plan… Netflix gives you unlimited streaming movies that you can either watch on your computer or on certain devices that connect to your TV to the internet… for example, the one that a lot of people are using is Microsoft’s Xbox 360... that lets Xbox owners watch Netflix movies thru their game console… Netflix just reached 1 million members on that service alone… that is a huge driver of traffic… I don’t know why Microsoft doesn’t buy Netflix… right now this is the only company offering this subscription based streaming video service… it has been a major contributor to Netflix’s sales growth… you have probably read a lot about it in the last day or two… Netflix expects physical disk shipments to peak in 5 to 10 years… and they are ready for it now… contrast that with Disney, which is still trying to figure out why people are renting DVDs instead of buying them… the whole format is going to disappear.

Now, there is still a lot of people who think Netflix shouldn’t work… I love to point the negatives out because I was under their spell… many investors believe that the stock has already had its run… of the 17 brokers who cover the stock only 4 have buys, 3 have sells, 10 have holds… the Yogi’s and BooBoo’s say it is too expensive… Netflix is trading at 20 time earnings… which does, yea that is expensive… but given that their growth rate is 15%… and the momentum and growth money managers have been willing to pay up to 2 times the growth rate for the stocks… like this one… well that would put Netflix's ceiling at about 30 times earnings… that is a risk that I am willing to take here.. some analysts are worried that people are going to be renting fewer DVDs per month… and there is going to be increased competition when it comes to delivering subscription streaming video… I don’t want to leave any of these flies.. I don’t want to leave out any of the flies, okay… because it is important that you know the positives and the negatives… but I think the positives outweigh the negatives.

Another one, I am trying not to contrast… hey look, there are some stocks that have this profile I would not like them… especially cause insiders have been selling… but then again the stock is up 80% in 4 months… so of course they are taking something off the table… that would be prudent… but it does tell me to please wait until a pullback before you buy… does that mean you can go out and buy Netflix tonight or tomorrow… no, exactly the opposite… you need to wait for a pullback before you buy.

Here is the bottom line….