Peter Kafka

Recent Posts by Peter Kafka

Netflix CEO Reed Hastings on Cable, Competition and Company Culture

Netflix has turned itself from a DVD rental company into a Web video subscription service, and consumers love it: Millions are signing up each quarter.

Investors love it, too: They’ve pushed the stock up in an amazing run over the last couple years.

Hollywood, the TV networks and the cable companies aren’t exactly sure what to make of it, though: Sometimes they seem to view Netflix as a threat, and sometimes they seem very happy to take Hastings’ business.

(Note: We’re streaming this interview live; more details here.)

8:09 am: Good morning! News Corp. digital chief Jon Miller is welcoming the crowd, and thanking sponsors.

8:10 am: Now Miller is agog at valuations, reminding us that we were close to living in boxes in the fall of 2008.

8:12 am: Now on to world affairs, and the impact of the Web on places like Egypt. Also, a shout-out to the bin Laden raid live-tweeter.

8:13 am: Did you know Jon Miller is a serious practitioner of martial arts? It’s true! Do not mess with him.

8:15 am: Miller reminds us that Google is really, really, really dominant in online advertising. And that Microsoft’s Kinect is doing well.

8:16 am: Miller on Web video: We’re moving to a streaming world instead of a download world. That will happen in music, too.

8:17 am: Miller says he’s surprised Michael Arrington is still at AOL, and a little less surprised that Walt Mossberg and Kara Swisher are still at News Corp.

8:17 am: And hey, here they are!

8:17 am: Now Walt and Kara’s time to vamp a bit. They’re explaining the origins of the D9 hoodie. (Two words: Mark Zuckerberg.)

8:18 am: The Latin phrase “Shut Up and Listen,” btw, is both W&K’s motto and the name of their LLC. (Really–it’s where I get my checks.)

8:19 am: Hey, remember when Mark Pincus was supposed to be on stage here? What happened with that? W&K offer some theories.

8:20 am: And here’s Reed Hastings.

8:21 am: Kara, via PaidContent’s Staci Kramer: Are you driving up the content so high that even you can’t afford it?

Hastings: No. How could I be doing that?

Kara: Good point!

Hastings: It’s a virtuous cycle. We get more customers, we get more money, we can afford more content, we get more customers.

8:22 am: Kara: You used to be the scourge of Hollywood. Now they like you. Is that just about money?

Hastings: Yes. “The whole relationship thing is overstated.” Pay them and they like you.

8:23 am: Kara: What’s up with the Starz deal? It’s over in 2012. You’re going to pay $200M a year to renew this, right?

Hastings: No deal yet, but “that wouldn’t be shocking.”

8:24 am: Kara: And then what happens next? You go to the rest of Hollywood and offer them more money?

Hastings: Pretty much.

8:24 am: Hastings: Consumers want us to have all the new stuff. But it’s very expensive, and we can’t afford all the new stuff and offer the service for $8. So at $8, we’re a compliment to the new-release business. “The new-release business will stay as pay-per- view, because that’s a higher margin for the distributor.”

8:26 am: Kara: Lots of the ads for movies say “you can’t get this on Netflix.”

Hastings: Yep, and a year ago we had 14 million subs and now we’re at 23 million. “So keep going.”

8:26 am: Kara: Please talk about your relationship with studios, cable guys. Are you encouraging cord-cutting?

Hastings: Nope. There was cord-cutting last year, but that was due to the economy. Now cable subs are up, and we’re growing, now at 23 million subs. “So it appears that to the consumer, Netflix is complementary.”

8:28 am: Kara: I was in the Polo Lounge (!) recently and saw your Hollywood guy Ted Sarandos talking to Jeffrey Katzenberg from Dreamworks. What were they talking about?

Hastings: Content.

8:29 am: Hastings: Going forward, our main competition is going to be from the cable guys’ TV Everywhere offerings, like Comcast’s Xfinity app. What we have to do is continue to go the next level. Have to make our HD great, and interface great, and get lots of content, and figure out social. “We have to continue to push the edge on Internet television, because we’re a national, and trying to be a global, company.”

Hastings says it’s not “natural” for cable competitors to compete nationally.

8:31 am: Kara: Ultimately, you’re going to sell to Apple, right?

Hastings: Nope. We’re at 23, 24 million subs (keeps growing!) and across the globe 5 billion people have mobile phones. Big opportunity.

Kara: So you don’t feel pressure from Amazon, Apple, etc?

Hastings: Nope, competition is healthy. Bing has been good for Google.

8:32 am: Kara: Where are you going to expand internationally?

We started in Canada, and we wanted to see how streaming-only works. Big success, and we’ll do worldwide. YouTube is a global brand, and they don’t have to do specific content deals. But we do, and we have to go country by country.

8:34 am: Kara: Right. So what’s next?

8:34 am: Hastings doesn’t answer (reports say South America).

Hastings: It takes us one to three years to get a new country profitable for us. Canada we’ll be profitable within a year, which is very fast.

8:35 am: Kara: Asia’s big for you, right?

Hastings: Sure. China will be tough but other countries offer a lot of opportunity.

8:36 am: Kara: Explain your original programming strategy. Also, will you save “Firefly”? Walt Mossberg’s son really wants you to do that.

Hastings: “Firefly” is very interesting. 10-year-old show that lasted one season. That shows wasn’t getting monetized at all, and now we’re paying Fox for it. It’s a good example of what we can do for content guys.

As far as original content, what we want is prior season for all the big shows. We have some Showtime, we’d like to get HBO.

But back to our “House of Cards” show with Kevin Spacey. We’re not producing it, we’re licensing it. Really, we’d like to spend that money on Showtime and HBO shows, but they’re not taking it yet. So we’re doing this instead.

HBO won’t take our checks yet, because they’re not big enough. But we’ll get there.

8:40 am: Kara: More “House of Cards” deals coming?

Hastings: Yep. We’ll do a few things. Serialized shows, where you can go back and catch old shows, those are good for us.

8:41 am: Kara: What do you think about competitors like Hulu?

8:42 am: There are a lot of players on the Internet, but “mostly we don’t compete with each other. We compete for time and hours” with cable and satellite. When you sit down, “you pick up one remote or another.”

8:43 am: Kara: What about mobile, other platforms?

Hastings: TV is most important for video, as opposed to music, which works well on mobile. In coming years we’ll be on lots of Web TV app stores.

8:45 am: Kara: What’s up with tablets? It’s a big deal, right?

Hastings: Meh. Apple TV is more important for us. Tablets not a revolution. The big deal for us is Internet-connected TVs.

8:47 am: Also big for us is fiber optic density. It’s “phenomeonal.” Outstripping Moore’s law. What Google is doing in Kansas City with broadband is amazing.

8:48 am: Kara: What about these stories that say you’re clogging the Internet?

Hastings: We prefer to say that “consumers are choosing Netflix.” We don’t put any strain on backbone at all–it’s only a last-mile thing.

8:48 am: Kara: Hey, you’re on the Microsoft board. How’d you get there?

8:49 am: They wanted someone from tech, and they compete with everyone, so they ended up with me.

Kara: What about what David Einhorn just said about Ballmer?

Hastings: Best thing for me to say is no comment.

8:50 am: Kara: How long will you run Netflix?

Hastings: Dunno. “At least for forseable future, I’m definitely in.”

8:50 am: I do worry about companies becoming long in the tooth. It happens to everyone, and that’s why we spend so much time on culture and talent density.

Kara: What’s talent density?

Hastings: Smallest number of highly talented people possible. We don’t dream of thousands of engineers. We want a small number of great ones.

8:53 am: Q&A:

Q: Your selection of old movies doesn’t seem that great, and Amazon seems better. What am I missing?

A: We have just about everything on DVD. If you want to rent a movie, you can get what you want from Apple, etc. If you want unlimited streaming, which we offer, it’s a much smaller universe. If you want Terrence Malick films, you’re going to have to go to DVD and Blu-ray. We can’t do unlimited streaming of everything for $7.99 a month.

Q: Would you raise prices for people who want more?

A: Nah. Our strength is our focus. We can’t try to be comprehensive like Amazon, that’s their strength.

Q: A while back you told Whitney Tilson to cover his short, and he did. What do you think about other public companies communicating to investors like this?

A: I’m not trying generally to battle with shorts. I think shorts are healthy. I just didn’t want Whitney to get hosed.

Q: You’re competing with Comcast via the Internet. When do you think they’ll start competing on the Web, too? (If I understood Q correctly.)

A: Hastings repeats mantra that he’s not going to be a cable competitor, but a complement.

Q: What’s the show you really, really want to offer?

A: “The Wire.” (Right!) But’s it’s an HBO show. Won’t get it without a big, big check.

Q: I don’t care what the stats say, I see kids cutting cable, not getting cable.

A: Cable guys added subs last quarter. If it did start shrinking, then there would be a much bigger battle. “But it’s not happening.” Maybe with some kids, but once kids get a job, they hook up. Maybe in 50, 100 years it’s an issue. Goes on to explain how great cable is. (Hear that, Comcast?)

Q: Would you offer news, sports, stuff that cable offers?

A: Nope. We want to be focused. We could do how-to stuff, for instance, but that doesn’t make sense for our brand.

Q: Could you start another brand?

A: We could do that. We have no plans to do that, and it’s not likely.

“We’re going stick in movies and TV shows.”

Q: Lots of companies want to get online-video ad dollars, please talk about that.

A: Video ad market will be big, but we’re not going to play there. Will help us differentiate over time from the ad-supported guys.

Q: Thanks for picking up “Firefly”! It’s awesome! Also: What do bandwidth caps mean for you guys? Also, please talk about net neutrality.

A: In general, the Internet is going to grow. We’ll have a gigabit for everyone within 10 years. “The world is going to get fiber everywhere.”

Q: Should the U.S. be speeding fiber deployment to homes?

A: Not going to happen in the U.S.

Q: Why isn’t Netflix social yet?

A: It should be. We launched Netflix Friends in 2005. That didn’t work. People want to use Facebook. “We’re working now to figure out the right integration with Facebook” with proper privacy controls. Think of it as a “five year” plan, at least, to integrate into Facebook, social networks.

Q: Licensing content kills most tech companies. You made it work. “What would you do if you were God” to change rules on content licensing?

A: Well, it’s worked well for us so far. Content companies want to make money. If you can help them, it works out. We’ve very proud that were outcompeting piracy in the U.S. Love to see if we can do it in Korea.


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