Connecting with... Netflix's Reed Hastings
Q&A;: 'Hybrid strategy' at the heart of business
By Danny King -- Video Business, 7/31/2009
JULY 31 | Q&A: Because of its success and intent to continue its growth largely by boosting its video-streaming popularity, Netflix is one of the most closely watched companies in home entertainment, and its founder, Reed Hastings, is one of its most closely watched executives. After founding and ultimately selling Pure Software, the 48-year-old Hastings, a former Peace Corps member, founded Netflix in 1997 and launched the service in 1999. The company, now the largest U.S. movie-rental service via mail, had sales of $1.36 billion in 2008 and surpassed 10 million subscribers earlier this year. He spoke with Video Business reporter Danny King.
Hastings
VB: You suggested in your most recent earnings call that one of the reasons Netflix hasn’t offered a streaming-only subscription option is because customers have indicated that there aren’t enough digital titles to warrant it. Is there a specific number of digital titles that could trigger a streaming-only option?
Hastings: You have thousands of YouTube titles, but that doesn’t really make a difference. We’ll continue to survey subscribers. The heart of our business is DVD plus streaming, and that’s what we’re focused on. We’ll continue to focus on a hybrid strategy.
VB: Last year, you said Netflix was still at least five years away from hitting its peak in DVD shipments. When do you think digital movies will become a meaningful part of the business, and what will it take for the availability of digital titles to approach that of DVDs?
Hastings: Our goal is to be able to write bigger and bigger checks to the studios to get better and better content. We’re significantly investing in spending with the studios on streaming content already, and we’re starting to see some significant benefits with consumers, but it’s still quite early.
VB: Some industry analysts and executives are pinning Blu-ray Disc growth largely on Blu-ray players being capable of playing digital titles on televisions and the type of streaming-capable agreements Netflix has with Samsung and LG Electronics. Yet less than 10% of Netflix’s subscribers are subscribing to Netflix’s Blu-ray rental option. Is that disappointing, and what will it take to grow Blu-ray?
Hastings: We’re very happy with the Blu-ray adoption. This fall, we hope to see some very low-priced Blu-ray players with increased adoption. The biggest factor would be how low they can get the player prices. Walmart had an offering at $99 last week. It would be great if that spread.
VB: You’ve reiterated that the growth of Redbox movie-rental kiosks and their $1-a-night rentals will have a detrimental effect on the home entertainment industry. With NCR looking to close the gap with Redbox by developing Blockbuster Express kiosks, are you all the more worried?
Hastings: I do still have the concern that $1 rentals will lower the value perception of DVD rental, but the NCR kiosks are still a very small total of that market.
VB: But NCR’s a huge company.
Hastings: A company like NCR doesn’t become successful in investing unless they can make money.
VB: Are you implying that NCR can’t make money from Blockbuster Express kiosks? Redbox is certainly profitable.
Hastings: I don’t know if they know they can make money. Ford makes money, but GM doesn’t.
VB: You have an agreement giving Microsoft Xbox exclusivity among videogame consoles to be able to stream Netflix’s digital titles, yet you’ve repeatedly polled subscribers on how popular a streaming option would be with Nintendo Wii and Sony PlayStation 3. When will the exclusive with Microsoft expire, and will you try to get agreements with Nintendo and Sony once the Microsoft agreement ends?
Hastings: We haven’t characterized the length of the exclusivity at all. We’re very happy with the agreement.
VB: Is Amazon trying to acquire Netflix?
Hastings: We don’t comment on rumors.
