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Hastings: Netflix Looking to Avoid ‘Armageddon’ With Cable

4 May, 2011 By: Erik Gruenwedel

Netflix CEO Reed Hastings May 3 continued the online disc rental pioneer’s politically correct mantra that it is not looking to take on the cable industry — despite media claims to the contrary.

Speaking at the Wired business confab in New York, Hastings told the tech magazine’s editor-in-chief Chris Anderson in a Q&A session that Netflix’s streaming business, first launched in 2008, has been in the works since he helped co-found the company more than 10 years ago.

With streaming usage surpassing 50% of Netflix’s subscriber base in the fourth quarter, Hastings said the company finally has realized its name, Net-Flix, and come a long way since the days when most PCs in the home had dial-up modems and broadband was a pipe dream.

“We took out our spreadsheets and we figured we’d get 14 megabits per second to the home by 2012, which turns out is about what we will get,” Hastings said. “If you drag it out to 2021, we will all have a gigabit to the home.”

While Netflix appears to be turning its back on physical discs without much hesitation, Hastings said the disc rental business afforded management the opportunity to perfect a business model — underscored by a burgeoning subscriber base — that now allows it to write $50 million to $100 million checks for digital content license rights.

“If we had tried to launch streaming in the beginning, I’m sure it wouldn’t have worked because we couldn’t have written big checks,” he said.

Ironically, that largely disc-based initial subscriber base now is beginning to feel a bit marginalized, notably in waning selections of Blu-ray Disc catalog titles, according to recent posts on Netflix blogs.

“Because of the surcharge, and because people who have a Blu-ray player are unlikely to be happy about settling for less, Netflix’s anemic Blu-ray acquisition is its most vulnerable point of attack amid the issue of its flagging commitment to physical media,” subscriber Perkins Cobb wrote in a post on HackingNetflix.com. “It will be interesting to see how they address it, because I suspect they will eventually have to. My guess [is] they won't go back to buying [more] Blu-ray titles, but they'll drop the surcharge and spin it as a PR win.”

If Hastings is concerned about alienating disc connoisseurs, he gave the subject short shrift (one paragraph) in Netflix’s most recent letter to investors, saying the company would reduce disc shipments “slightly” in the second quarter and second half of the year.

At the Wired event, Hastings seemed more concerned about upsetting the cable industry, despite the fact Netflix’s 23.6 million subscriber base at the end of the first quarter surpassed Comcast for the first time. He reiterated that he sees Netflix as complementary to — and not replacing — cable, and focusing on older content while cable showcases new fare, sports and news.

“It would start an Armageddon battle (competing head-to-head with cable), and we would not emerge alive from that battle,” Hastings said. “So we are concentrating on our niche.”

Of course, Netflix is competing with cable as underscored by it outbidding HBO and others to the license rights of British drama series "House of Cards," which will be remade starring Kevin Spacey and directed by David Fincher.

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