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Netflix CEO: No Government Regulation of BSkyB Needed — For Now

23 Mar, 2012 By: Erik Gruenwedel

Reed Hastings

Netflix founder and CEO Reed Hastings said he is against the British government regulating British Sky Broadcasting Group’s (BSkyB) foray into subscription video on demand service — for the time being anyway.

Speaking March 22 at the MediaGuardian Changing Media Summit in London, Hastings said he preferred a “fair fight” with the News Corp.-owned satellite TV service, dubbed “Sky," instead of government mandates aimed at leveling the SVOD playing field.

“Sky is a fearsome competitor,” Hastings said, as reported by MediaGuardian. "They have all six major [Hollywood studio] output deals. Right now there probably isn't a pressing need for government intervention, but if we don't have one [of Sky's big studio deals] in a year or so …”

Sky, which has about 10.4 million subscribers, said Jan. 31 that it will roll out an SVOD service aimed at taking on Netflix’s January launch of service in the United Kingdom and Ireland. In a twist, Sky said it planned to stream live sports programming — a lucrative genre Netflix and others do not carry. The new service will be available across a wide range of connected devices, including PCs, Macs, laptops, tablets, mobile phones, games consoles and connected TVs.

“We are aiming for a fair fight,” Hastings said at the summit. “One of the big advantages is that we are £5.99 [per month]. That is a fundamental difference in positioning. Frankly, we think many people will get Netflix in addition to Sky Movies or Sky Atlantic.”

The CEO said he would revisit the issue in a year or two if Netflix wasn't allowed to bid on Sky's studio deals as they expire.

Some media reports indicated surprise Hastings wouldn’t welcome government regulation in an effort to help bolster Netflix’s international expansion of service. But the CEO’s attitude is fairly consistent with a mindset that Netflix’s SVOD service is complimentary — not adversarial — to multichannel video program distributors.

More importantly, Sky’s studio deals do not necessarily include SVOD rights — an option studios and media companies now micromanage intensely. Also, should Sky offer premium Hollwood movies on low-margin SVOD, it could undermine what it charges subscribers for pricier bundled services.

When pay-TV aggregator Starz Entertainment subcontracted license rights to Disney and Sony movies to Netflix’s relatively unknown streaming service in 2008 for $30 million annually, the agreement would loom large in Netflix’s meteoric rise in popularity and profitability — much to the chagrin of Hollywood. Indeed, News Corp.’s COO Chase Carey would later characterize it as a deal of a lifetime.

Hastings has instead sought to fight regulatory efforts in the United States in an effort to loosen consumer privacy rights with social media (i.e. video rental habits posted on Facebook), in addition to restricting cable and satellite operators’ stranglehold on broadband access into homes.

The British government’s competition commission last summer said it believed Sky’s exclusive studio deals (News Corp. owns 20th Century Fox Studios) gave the satellite TV operator an unfair advantage and needed to be regulated. That mindset changed a bit earlier this month when the commission said it wanted to assess the impact Netflix and Amazon-owned SVOD service LoveFilm Instant had on the streaming market before issuing a final report.

“We recognized in our provisional findings that, were developments in the market to occur, it would be necessary to take them into account before reaching our final views,” the commission said March 14.

Indeed, when Netflix launched service in Canada, that country’s regulatory commission determined the SVOD trailblazer actually expanded consumer options and did not warrant oversight — a move local and regional cable operators had sought.

Hastings wouldn’t divulge U.K. subscriber numbers but did say consumer adoption thus far has exceeded that of other international expansion efforts. He said it could take up to two years to reach 10% market penetration of the United Kingdom’s 28 million households.

“Not many services get to that," Hastings said. "It is a big number. It might take us a couple of years. We want to become a full global service like YouTube.”



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