Could be!

But the news that Netflix miscalculated the effect of its price hike, and now expects to lose subscribers this quarter, doesn’t seem quite so bad once you peer at the numbers for a second.

As Dan Frommer reminds us, almost all of the shortfall comes from the video rental company’s customers who only want to rent DVDs. And as Netflix has said — over and over and over — it doesn’t want to be in the DVD business.

It just said it again yesterday, in fact: “Our future is that of a streaming video company, not a DVD-by-mail company,” Netflix content boss Ted Sarandos explained at an industry conference.

And while Sarandos and everyone else at Netflix explains that they’re happy to have DVD customers for now, and that they want to let their DVD unit do better by operating as a standalone unit, etc., there are plenty of people — including me — who believe that the company’s price hike was designed in large part to kill off its DVD business sooner than later.

So mission partly accomplished!

If I had to guess, I’d guess that market freak-out yesterday is due in part because this may be the first time Netflix has had to come back to investors and acknowledge that it got a forecast wrong. A big chunk of the company’s appeal comes from the aura that CEO Reed Hastings projects: You guys always doubted me, but I’ve always been right. Not that I’m boasting or anything.

If you want to worry about Netflix’ future, then the core question is whether they’ll be able to wrest enough content from the big studios to keep their streaming customers happy.

Losing the Starz deal, which will keep Sony and Disney films out of their hands (for now) seems like a much bigger deal. But that news didn’t hurt Netflix stock nearly as much. Go figure.

That’s the question posed to Netflix content boss Ted Sarandos by News Corp. digital boss Jon Miller today at a Paley Center event in Los Angeles.

Sarandos’s response is basically a shrug: “Being able to precisely forecast and predict the behavior of that many people on fairly radical change is something that we’ll get better at all the time.”

Miller didn’t press Sarandos, and Sarandos didn’t evince any sense that the company had second thoughts about its price hike, which he argues really isn’t a price hike.

Wall Street is not nearly as sanguine, however, and has chopped NFLX shares down by 18 percent today, to $170. Recall, again, that NFLX was nearly at $300 earlier this summer.

And here I should point out that News Corp., Miller’s employer, also owns this Web site. Other disclosures, which Miller noted in his introduction: Miller is a board member of Netflix competitor Hulu, and News Corp. has content deals with Sarandos and Netflix.

So: Many conflicts here! But this is still a very good, very timely interview. Runs about 40 minutes, and well worth watching if you want to dive deeply into both Netflix and the digital media business.

If you’re looking for Sarandos’s take on the end of the Starz deal, by the way, that kicks in around the 20-minute mark. Very short version: “Buyers and sellers disagree on values and prices all the time. And that’s all that happened,” Sarandos says, adding that his plan is to “spend an enormous amount of money on things that get watched an enormous amount of time.”

That doesn’t jibe with reports that the deal broke down because of Starz’ insistence that Netflix institute a new pay tier for its content. But maybe someone can ask about that in a different interview.

That’s a big change for the video rental company, which has previously made its money on movies and tv shows that someone had already shown somewhere else.

But Netflix content chief Ted Sarandos doesn’t see it that way. His argument is that this is just like the company’s deals to buy other shows — just a bit riskier.

How much risk, exactly? Sarandos wouldn’t discuss the terms of the deal, though people familiar with the company have already batted down the $100 million-plus figure that Deadline.com threw out when they first reported the story.

But Sarandos did say Netflix won’t cover the entire costs of production with its license fees: That’s the responsibility of Media Rights Capital, which will produce and own the show. So even if the show does cost $4 million or more per episode, for 26 episodes, Netflix won’t be on the hook for the entire thing.

No matter what the details are, it’s still a big bet, and a big move. Sarandos walks me through the company’s rationale in an edited Q&A:

Peter Kafka: This is a pretty big move for you guys, right?

Ted Sarandos: It’s not much of a radical departure in what we do every day. There’s an added risk factor, in that this is the first time we’re licensing something that hasn’t been produced, or at least completed.

But there’s no risk factor in terms of delivery, because we’re not investing development money, and we don’t pay for it unless they deliver the show. But it is the first time we’ve made a very large commitment to a series that hasn’t been produced.

It’s just a matter of your philosophy around development. Networks can typically invest tens of millions of dollars in the development of a pilot. And if they put the show on the air and it fails, that’s all lost money. There’s no monetization of a broken series.

We’re betting on the creative team and the source marterial. “House of Cards” is incredble source material–the BBC version is quite popular already on Netflix. David Fincher’s work has all been incredibly well-received on Netflix, and Kevin Spacey’s films have all worked on Netflix. The notion that that team will produce a very good product is a pretty safe bet.

Kafka: You’re not producing the show yourself–Media Rights Capital will do that. Will you cover their costs, or will they deficit finance it?

Sarandos: They’ll deficit finance it. We’re coming in at a percentage of the budget.

Kafka: So where else will can they make their money?

Sarandos: Anywhere in the world. Syndication, DVD. Same as any other show. It’s traditional in the windowing, it’s just that Netflix owns the first window.

Kafka: So what will it cost?

Sarandos: No comment. But I will say this: If the show proves very popular, it won’t be any more expensive than licensing a popular show off of a network. So economically, it’s not a seismic shift, if it’s popular. If it isn’t, then we’ll have paid more for an unpopular show than we normally would have.

Kafka: The TV networks pick shows for a living, with mixed success. But the other thing they do is use their reach to promote their shows. You don’t have a network to promote this stuff, so how do you compensate for that?

Sarandos: The models are radically, radically different. They’re trying to develop a show that will be watched in very big numbers on Wednesday night at 9 pm, so they can sell advertising against it, for that time slot.

I don’t care if people watch it Wednesday night at 9pm. They can watch it anytime in the life of the license, and it’s economically neutral.

The fact that we can algorithmically bring an audience to a show, we’ve proved for 11 years, on DVD. So I have very high confidence that the same methods and algorythms that we’ve used to pre-determine size of audience for a show will work, here. Even if the show doesn’t have a massive external marketing campaign, or even large external awareness.

Kafka: What about the notion of Netflix as a show-picker? The nature of the business is that you could still end up with a bad show, or a good show that people don’t like. Can you really afford to rifle-shot these shows, one at a time? Don’t you need to do a lot of these?

Sarandos: Think of this as a piece of content on the continuum of the shows we acquire. Everything from the Andy Griffith Show to TV shows in the previous seasons. And now just take it to the next level of the continuum, which is the premeire season of a show.

These one-hour serialized dramas have proven incredibly popular on Netflix. So our desire is to have a lot of them, because it really encourages long-term engagement.

Kafka: Will you do more of these deals? Or is it a test?

Sarandos: It’s not a test. It’s a large commitment. If the right properties show up, we’ll do more, but we’re not under any pressure to do it. I don’t look at is a change in our business model, as much as an evolution of our licensing abilities.

There was a time where we wouldn’t have been able to attract a show like this, because we were too small, and perceived as too low-profile for such a high-profile product. I think it speaks volumes to the perception of Netflix as a distribution channel among content creators that we could even be in the competition for a show like that.

Kafka: I’ve previously suggested that part of your motiviation is here is about perception–specifically, that your ability to get shows like this increases your negotiating leverage with distributors like Starz. Does that play into your thinking?

Sarandos: To the extent that I would prefer to license previous seasons of HBO, Showtime, Starz’ shows? Sure. And if those shows are not going to be made widely available in decent windows, then my other alternative would be to compete with those guys for those shows.

Kafka:You’ve been adamant about saying you’re not interested in getting into the “next-day” window for TV shows, like Hulu does–where a show airs on a Tuesday and you can stream it on a Wednesday. Is that still the case?

Sarandos: Our value proposition to consumers is so much more about completeness than freshness. Having the complete season is so much more valuable, in our business model, than having last night’s episode.

That is demand fulfilment more than demand creation, and demand fulfillment tends to be a much lower-margin busienss. And I look at the series that we have today: The most watched episode of almost any given series on any given day, is episode one, season one.

So we have new people coming to these shows constantly. So there’s much more value in having the entire series experience, than it is having last night’s episode, or some kind of convoluted, rolling 5-episode model [like Hulu does].

Kafka: And the fact that you’re getting an exclusive window with this show doesn’t change that?

Sarandos: Not at all. Because remember that we’ll have the show, in its complete form, all the time.

(And yes, that image above has nothing to do with House of Cards, Fincher or Spacey. But finding an image from a yet-to-be produced TV is too challenging for me today.)

David Fincher’s “House of Cards” Starring Kevin Spacey to Be Streamed Instantly in North America Exclusively from Netflix

New television series from Media Rights Capital brings
the highly anticipated adaptation of the award-winning BBC political thriller
to Netflix members in late 2012

Beverly Hills, CA (March 18, 2011) – “House of Cards,” the much-anticipated television series and political thriller from Executive Producer David Fincher and starring two time Academy Award-winning actor Kevin Spacey, will debut exclusively in the United States and Canada from Netflix, the world’s leading Internet subscription service for enjoying movies and TV shows.

Netflix has committed to a minimum of 26 episodes of the Media Rights Capital drama, which is expected to be available to the more than 20 million Netflix members, beginning in late 2012. Fincher, the Oscar-nominated director of The Social Network and The Curious Case of Benjamin Button, will direct the pilot written by Beau Willimon (Farragut North and film adaptation, The Ides of March). A satirical tale of power, corruption and lies, “House of Cards” is based on the book and acclaimed BBC mini-series of the same name.

“The gripping, serialized one hour drama has become a very important part of the Netflix experience,” said Netflix Chief Content Officer Ted Sarandos. “David Fincher’s unique vision, the indelible performances of Kevin Spacey and the original version of “House of Cards,” all have a big following among our members, giving the series a very good chance of becoming a fan favorite. We are thrilled to be working with this amazing team.”

Originally written as a novel by former U.K. Conservative Party Chief of Staff Michael Dobbs, “House of Cards” explores the ruthless underside of British politics at the end of the Thatcher era. Reset against the backdrop of modern-day U.S. electoral politics, the new one-hour drama follows an ambitious politician (Spacey) with his eye on the top job.

Scripts for 13 episodes will be delivered before production on the “House of Cards” pilot begins in the spring of 2012. Production on subsequent episodes of “House of Cards” will commence several months later, allowing producers time to carefully develop the series.

Media Rights Capital’s “House of Cards” stars Kevin Spacey (Casino Jack, American Beauty, Seven) and was developed by Beau Willimon (The Ides of March). David Fincher (The Social Network, The Curious Case of Benjamin Button, Seven), Josh Donen (Spartacus: Blood and Sand), Academy Award-winner Eric Roth (Forrest Gump, The Curious Case of Benjamin Button), along with Kevin Spacey and Dana Brunetti of Trigger Street Productions (The Social Network, 21) are Executive Producers for the series. Emmy Award-winner Andrew Davies and Michael Dobbs, who produced the original BBC series, also serve as Executive Producers, with Willimon as Co-Executive Producer. The “House of Cards” pilot is written by Willimon and will be directed by Fincher.

But don’t expect to use Netflix to watch shows that aired last night, or even in the last few weeks or months. In most cases, Netflix is adding shows that are a year old or more.

And in the case of the handful of shows that Netflix does run in the same season they appear on TV, it is increasing the “window” between their air date and the time they show up on the company’s streaming service.

Netflix previously had the ability to stream some Disney Channel shows, like “Wizards of Waverly Place,” the day after they aired. But now it will wait 15 days to run them, says Netflix content boss Ted Sarandos. The flip side: Netflix will get access to other Disney/ABC-owned shows that it hasn’t had in the past, like “Scrubs,” and in some cases it will get a deeper catalog, like more episodes of “Lost.”

Which makes this deal similar to other deals Netflix has cut in the past year with movie studios like Sony and Time Warner’s Warner Bros. for their offerings: Netflix writes a big check and agrees to wait longer to distribute some content, in exchange for the rights to more content, overall.

So what if you want to watch TV shows that ran last night? There are plenty of other places to get that, like Hulu, Apple’s iTunes or video-on-demand offerings from cable providers.

“Day-after broadcast is not core to our strategy. We’re not in that business, particularly,” Sarandos says. “I highly value completeness over freshness. For our customers, it’s much more about being able to watch the entire run of a show, as it is about being able to see time-shifted episodes.”

Translation: Hey Hollywood and TV executives! Don’t believe what you hear and read–we don’t want to blow up your existing distribution models. We just want to write you big checks for stuff after you’re done with it.

Earlier this fall, Netflix announced a similar deal with GE’s NBC, and Sarandos says he thinks his agreement with News Corp.’s Fox is fairly robust (News Corp. also owns this Web site).

Which means we should expect to see something from CBS down the pipe, too, right? “We’re constantly in talks” with other content owners, Sarandos says.

Translation: Hey Les Moonves! We’re no Google. How much do you want for “The Mentalist”?

Netflix (NFLX) has agreed not to rent the Time Warner (TWX) studio’s movies for the first 28 days after they go on sale. In return, it will pay the studio a reduced fee when it does rent the discs, and will get more movies to offer via its growing Web streaming service.

Hard to get a very good sense of the deal because no dollar signs have surfaced so far. But the broad strokes sound good for both sides: Warner gets a big distributor to help it protect its retail sales for a bit longer, and Netflix gets to reallocate the money it spends from discs to digital.

Here’s Ted Sarandos, Netflix’s Hollywood emissary, via Reuters:

Sarandos declined to comment specifically on the economics of the deal but said it represents meaningful savings in terms of what it spent on Warner’s physical discs in 2009. He said, however, Netflix was reinvesting those savings in streaming.

“On a net basis in 2010, we’re growing our spending on the studios even if we are saving on physical DVDs,” he said, adding he expects this trend to continue as more and more customers seek movies through its streaming service.

“In 2010, Netflix will spend $600 million on postage,” said Sarandos who envisions “moving that entire bucket of spending to Hollywood and out of the post office.”

Note that this is exactly the agreement that Warner and other studios have not been able to strike with Redbox, the upstart rental outfit, which has led to a legal fight.

And it helps Netflix answer a question I hear more and more often these days: When will it be able to expand its selection of digital movies, which right now remains just a fraction of its physical catalog?

I’ll be able to ask CEO Reed Hastings that question myself on Friday during an interview at the Venetian Hotel in Las Vegas, where the All Things Digital team is gathering for the annual Consumer Electronics Show. You can listen in to what Hastings has to say at CES via a Web-streaming offering of our own Friday afternoon. Some details here, and more to come.

Tech is getting a lot of attention in Hollywood, so talking about online video is a key area for the independent filmmakers who are here this year.

Topics on the panel were wide-ranging, including: social networking, politics, the writers’ strike and the need for more broadband.

Better yet, here’s the description of the panel:

“The writing is on the wall–the industry must adapt to new media or face extinction. Today’s studios and independents are finally embracing the challenge of porting content and revenue to new distribution strategies. Join Hollywood power brokers and new media superstars to discuss their strategies for the Web.”

The panelists included Ted Sarandos (Netflix), Dmitry Shapiro (founder and CEO of Veoh.com), Dan Glickman (MPAA), Jason Kilar (CEO of Hulu.com), Mike Volpi (CEO of Joost.com), Erik Flanagan (EVP Digital Media MTV Networks/Comedy Central/South Park Studios) and tech strategy adviser Phil Lelyveld.

In other words, me and seven guys, which is about par for the course in Silicon Valley!

Here’s the video:

And here is my video touring the festival.

I just got to Park City, Utah, for my annual visit (well, this will be my third year here) to the famous film festival that takes place in this lovely mountain resort.

While I like a good movie as much as the next person, I am no film aficionado, nor do I have a screenplay stuffed in a drawer, nor do I hope someday to direct. I do like celebrity sightings, of course.

I am here because the Sundance Film Festival has understood early and often that technology is becoming increasingly important to the future of the film industry.

Because of that, they’ve been expanding additional offerings in the digital arena with panels throughout the festival.

The panel I will moderate is a great one about online video, called “Webolution!–Hollywood Adapts to the Web.” It will take place tomorrow at 12:30 p.m. at the New Frontier on Main here.

Here’s the description:

“The writing is on the wall–the industry must adapt to new media or face extinction. Today’s studios and independents are finally embracing the challenge of porting content and revenue to new distribution strategies. Join Hollywood power brokers and new media superstars to discuss their strategies for the Web.”

The panelists include Ted Sarandos (Netflix), Dmitry Shapiro (founder and CEO of Veoh.com), Dan Glickman (MPAA), Jason Kilar (CEO of Hulu.com), Mike Volpi (CEO of Joost.com), Erik Flanagan (EVP Digital Media MTV Networks/Comedy Central/South Park Studios) and tech strategy adviser Phil Lelyveld.

Videos, of course, to come, along with visits with various tech players here, who are increasing in number annually. And, maybe, a Hollywood celeb or two.