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Hastings Open to Bundling Netflix With Multichannel Video Program Distributors

28 Feb, 2012 By: Erik Gruenwedel

Netflix CEO Reed Hastings said he isn’t opposed to including the streaming service in monthly subscription programs sold by third-party telecommunications companies and cable operators seeking to bow a subscription video-on-demand service.

Speaking Feb. 28 at the Morgan Stanley Technology, Media & Telecom conference in San Francisco, Hastings said such an offering wouldn’t occur in the short-term and would likely only occur several years from now. Regardless, the CEO said he wouldn’t be opposed to a scenario proffered by the moderator whereby Verizon included Netflix as add-on to its FiOS TV fiber optic platform as long as consumers knew the streaming service was Netflix and not a co-branded service.

Verizon, of course, just announced a digital partnership with kiosk vendor Redbox.

“There’s no reason it doesn’t make sense for Netflix depending on the economics,” Hastings said, adding that additional partners could include broadband providers and game platforms.

He said bundling Netflix would give multichannel video distributors added leverage when negotiating HBO and Showtime carriage fees, among other competitive advantages.

“If we can harness some of [MCVD] up-selling capabilities … and they’re sharing some of their margin with us … I think it is a logical path,” Hastings said.

The CEO said the biggest threat currently comes from cable companies, including the recent announcement of Xfinity Streampix by Comcast. Hastings said the No. 1 cable operator has become innovative with incorporating the best of the Internet (on demand and personalization) into its traditional business.

“We have to pay some attention to the current copycat competitors … but the big competitor is the one that has the big structural advantage like cable, where if they co-opt all of our Internet benefits and creates a great on-demand experience,” he said. “Why bother subscribing to Netflix?”

With a first-mover position in streaming movies and ubiquitous access on more than 700 consumer electronics devices, Netflix, of course, defines the subscription video-on-demand business. A market that now includes Hulu Plus and Amazon Prime — the latter as an add-on to the ecommerce behemoth’s shipping program.

Hastings said that as Netflix has established the SVOD market, other content distributors are mandating exclusive digital rights to third-party content, which in turn drives up acquisition costs and necessitates licensing exclusive rights producing original programming.

“The more we do original content, the more it is going to be natural to have Discovery Channel, Netflix, watch ESPN, watch HBO. … We’re just another network,” he said.

Hastings said TV Everywhere platforms such as HBO GO and Xfinity TV are not a threat to Netflix today but long-term is another question. The CEO added that Amazon remains a relatively unknown competitor in the U.S. with deep fiscal reserves and limited visibility as to its forward strategies.

“Amazon’s strengths are that they are super long-term [and] they keep everybody guessing including you and including me,” he said.

Hastings said Netflix would continue to focus on global expansion as the domestic economy recovers. He said that with SVOD a hot button issue globally, expanding the brand internationally over time would be easier due to greater consumer awareness and acceptance in those countries.

He said Netflix would consider going after content deals currently locked up by HBO and Showtime that are set to expire in 2014 provided they provided incremental value to subscribers.

“We want to be a brand where the consumer feels like [they always] have to turn Netflix on because [they] just enjoy it so much,” Hastings said.

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