Peter Kafka

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How Netflix CEO Reed Hastings Sees the Future: Netflix Wins, Apps Win and So Do HBO, ESPN and the Cable Guys

Fresh off a triumphant earnings report, and with investors once again clamoring for his shares, Reed Hastings has something to say.

A lot to say: The Netflix CEO has written an 11-page essay that lays out his vision for the future of streaming video.

If you’re looking for news, you won’t find much here — nearly everything in the document, published on Netflix’s investor website, is a repeat of things Hastings has said or written in recent years.

But if you’re at all interested in the way Hastings thinks things are going to play out in the battle for video eyeballs, and why he thinks Netflix will win many millions of them, it’s well worth a read.

I’ve embedded the document below so you can scan it at your leisure. If you’re in a hurry, some bullet points:

  • The one new nugget here is a Hastings prediction, held by many other people, that we’re moving to a world where “apps replace channels.” Hastings mentions apps nearly 3 dozen times in his essay, and makes it clear that he sees Netflix first and foremost as an app provider.
  • Hastings figures that lots of other video services will figure the same thing out. And he goes out of his way to mention others that are already there or close to it, citing ESPN, HBO and the BBC.
  • But those who don’t get it are screwed, he says: “Existing networks, such as ESPN and HBO, that offer amazing apps will get more viewing than in the past, and be more valuable. Existing networks that fail to develop first-class apps will lose viewing and revenue.”
  • In the past, Netflix has tacked back and forth on whether it is competing head to head with HBO. Now Hastings is back in “we’re coming for you” mode: “The network that we think likely to be our biggest long-term competitor-for-content is HBO … They have global reach and strengthening technology capacity.”
  • But while Netflix now has as many U.S. subscribers as HBO — and while Hastings thinks he can eventually double or triple his current 30 million — he figures it will take him a while to truly compete with HBO. “While we are passing HBO in domestic members in 2013, it will be several years before we are peers with them in terms of Original programming, Emmy awards, and international members. It wouldn’t be surprising to us if HBO does their best work and achieves their highest growth
    over the next decade, spurred on by the Netflix competition and the Internet TV opportunity.”
  • But Hastings also reiterates his argument that there’s room for lots of streaming video services, just like there are lots of cable channels today. Translation: Don’t worry, Jeff Bewkes: Just because we’re coming for you doesn’t mean we’ll crush you. Also, please keep selling us Time Warner’s content! Thanks!
  • Hastings also continues to offer olive branches to the entrenched cable guys, especially those that also sell broadband: “At times we have worried about the strategic motivations of ISPs that are also MVPDs, but the absence of cord-cutting has mitigated this concern. … Internet video services like Netflix,, iTunes and YouTube are not currently a material strategic problem for companies that are both an ISP and an MVPD.” Translation: Hey Comcast, Time Warner Cable, Verizon! It would be pretty cool if we figured out a way for you guys to bundle us along with your other video services! Let’s (continue to) talk!

Lots more below. Well worth your time.

Netflix Ir Letter

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