Reed Hastings at D9 Conference: Netflix Will Remain Complement, Not Competitor, to Cable

Netflix has had an incredible run at transforming television, so I’m always interested in what CEO Reed Hastings has to say. This morning, AllThingsD‘s Kara Swisher is interviewing him at the D9 conference in Southern California. I’m not attending, but AllThingsD is doing a livestream of a few sessions, including Hastings. Here’s what he had to say:

Q: Is Netflix so successful that it’s driving up the cost of content beyond what even it can afford? Hastings: We’re in this virtuous cycle. We’re paying more for content, but we continue to grow with 35% gross margins. So it works as long as subscriber growth continues.

Q: Is it just handing over money to Hollywood that has improved its perception of Netflix? Hastings: Yes (in a word).

Q: What about the Starz deal (a key one for lots of movies and TV shows, which Netflix got cheap a couple years ago)? Hastings: We’ve grown a lot since then, so we’ll pay more for the content.

Q: $200 million as rumored? Hastings: Wouldn’t be shocking. (Though Starz wants a lot more than that.)

Q: Where do you go next to get fresher content? Hastings: We look at what we think our subscriber count will be at the end of the year, so what is our budget? Then we go out and do deals. Consumers want us to have all the new stuff. But the new stuff is very expensive. You can’t get it at $8 a month. We’re really much more of a complement for the new-release business.

Q: Are you interested in getting those new shows immediately? Hastings: No. Many in the network business feared that many households would cut the cord. There was a lot of nervousness. And last year there was a bit of cord-cutting. But it turned out that was because of fewer households/economy/etc. Then the last two quarters, there was growth in cable subscribers.

Q: Will that change again? Hastings: In the long term, we’re all competing for time-share of the consumer, and wallet-share. Not competing directly, but for a share of consumers’ time and money.

Q: Who’s your biggest competitor? Hastings: TV Everywhere, cable, telco, satellite. Most likely the competition will be bundling Internet content as part of the cable or satellite package–that’s TV Everywhere. It’s a formidable competitor. We can compete with personalization and social.

Q: Where does Netflix go from here–sell to Apple? Hastings: No (not considering selling to Apple). We’ve got a great long-term future. Around 23 million subscribers.

Q: You’re getting more competition, though. Hastings: We’re getting some competition–Amazon launched something that’s a competitor in Prime (Amazon Prime free videos)

Q: What about international expansion? Hastings: We went really bold–to Canada. (Laughs at that.) It gave us enough confidence to go with streaming around the world. YouTube is a global streaming video service. But with professional content, we have to go country by country, for example getting specific approvals for France, etc.

Q: How quickly will that international expansion go? Hastings: It depends on the response. If it goes really well, we’ll lose more money (for awhile). In Canada, we’ll get to profitability in one year after launch.

Q: Explain the original programming (that Netflix has started doing, such as the recent House of Cards deal). Are you a Hollywood mogul now? You don’t look like one. Hastings: Thanks. On original programming, mostly what we’d like to do is previous-season shows, like from HBO. We do better on catalog. That generates demand for current-season. What we have to see is, can we write a big enough check that HBO will give previous season to us rather than hold it for HBO Go. On House of Cards with Kevin Spacey, we’re not actually the creator. We agreed to license it sooner (than we otherwise would have).

Q: So you don’t imagine making movies and premiering them on Netflix? Hastings: I don’t think we have an expertise in doing that. We’re more a channel of distribution for the studios.

Q: How do you look at the distribution competition, like Hulu? Hastings: There’s Hulu, Amazon, YouTube. Also pay-per-view. But mostly we compete for time with pay TV.

Q: What about mobile? Hastings: We’re big on all platforms. Video is nice on mobile when you’re working out or commuting, but most of Internet video is consumed on television. You’ll have an app store on TV. The laptop is still the biggest single device.

Q: Would there be a Netflix television? Hastings: No. We want to be agnostic on the device.

Q: What’s been the difficulty of making real Internet TV happening? Hastings: There weren’t any killer apps. Now there’s YouTube, Netflix.

Q: How important are tablets? Hastings: Apple TV is bigger than the iPad for us. We’re TV-screen-centric. Tablets are nice but not a revolution.

Q: Where do you go from here? Hastings: WiFi TV is one big thing. Also higher-density fiber optics, meaning basically unlimited video.

Q: What do you make of the stories saying Netflix accounts for so much of Internet traffic? Hastings: It’s only the last mile. We cache our content all around the edge. So we’re nonexistent on the Internet per se.

Q: What do you make of David Einhorn’s attack on Microsoft CEO Steve Ballmer? Hastings: As a board member, I care a lot about Microsoft. The best way for me to serve Microsoft shareholders is not to answer that question.

Q: What worries you the most as CEO? Hastings: Getting long in the tooth. That’s why we spend so much time on culture and talent density (smaller number of very productive people).

Q: Are you surprised no one’s become a large competitor of yours? Hastings: Blockbuster was several years ago. But since then we’ve got economies of scale. Something will eventually replace the Internet–not sure if it’s in 100 years or 10 years. It’s hard to imagine what it will be.

Q (now from audience): Amazon seems to have more films on pay-per-view streaming; are they doing better than Netflix on that? Hasting: We have everything that’s on DVD and Blu-ray. But we can’t be at $7.99 a month at unlimited content. It’s not trying to be full reference on pay per view. Not planning to offer that kind of content for a small monthly fee. So it sounds like no big plans for Netflix pay-per-view.

Q: What show would you love to get? Hastings: The Wire. (But) HBO needs a big, big check.

Q: We (university person) are seeing fewer students bringing TVs to college, less real-time content. Do you see competition heating up for Netflix as Comcast etc. do more over the top programming? Hastings: Cord-cutting isn’t really happening. At some point everything will be on the Internet. But we’re one little pocket of content.

Q: Do you ever see offering news and sports? Hastings: No. Or, say, instructional videos. We’re never going to be able to defend and sustain that. That’s a different brand.

Q: Could you start another brand for that? Hastings: We could start another brand. We have no plans to do that.

Q: What is the prognosis for ad-driven online video? Hastings: That segment will be very large–Hulu, etc. But we have a niche strategy.

Q: How will Netflix contend with bandwidth caps? Hastings: Once you lay fiber optic, you can offer unlimited bandwidth for nearly free. So it will happen eventually. Fiber will get to every home over the next decade.

Q: How will Netflix use social for discovery of new content? Hastings: Eventually will integrate with Facebook. We have to figure out what people are comfortable with. We just have to take it a little bit slowly. (We cancelled our own social network in 2008 after three years.)

Q: What would you do to change the rules on content licensing? Hastings: It would appear the rules are good enough because we’ve been able to be successful. Piracy has been absolutely devastating in the music industry. So I think it’s perfectly legitimate to have fears about piracy in video. We’re outcompeting BitTorrent in the U.S. Will see if we can do the same in South Korea where piracy is rampant.

That’s it.

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  1. [...] Reed Hastings at D9 Conference: Netflix Will Remain Complement, Not Competitor, to Cable (robhof.com) [...]

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