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Reed Hastings Pegs Netflix Sub Potential at 90 Million

25 Feb, 2013 By: Erik Gruenwedel

Reed Hastings

CEO says original series ‘House of Cards’ has met all expectations

Netflix CEO Reed Hastings said the subscriber target for his pioneering streaming service is upwards of 90 million members worldwide — about three times it current sub base.

Speaking Feb. 25 at Morgan Stanley Technology, Media and Telecom confab in San Francisco, Hastings said the subscriber metric is loosely based on a multiple of HBO’s 30 million domestic premium TV subscribers. The CEO has often said he considers HBO and its HBO Go on-demand streaming platform as benchmarks for Netflix’s growth.

“We want to be the HBO of that space,” Hastings said, adding that increased bandwidth in connected homes via compatible TVs and related devices is making access to content from the Internet more mainstream.

At the same time, he said the SVOD service offers a cheaper and simpler-to-use consumer interface than HBO, underscored by broader content selections such as children’s and anime programming.

“Two to three times HBO, so 60 to 90 million [subscribers] would be a way to extrapolate that,” Hastings said regarding Netflix’s growth potential. “There is not a real precise way to do it. That’s our best guess looking at it.”

To secure those eyeballs, Netflix has spent heavily on original programming and securing exclusive pay-TV rights to major studio movies, including Disney theatrical releases beginning in 2017.

The CEO said the strategy around “Cards” was to pay a premium ($100 million for two seasons) to secure top talent (Kevin Spacey), producers and directors (David Fincher), thereby raising the odds of the series being successful out of the gate.

“It has met all of our expectations,” Hastings said.

Hastings said Netflix's second original series horror thriller “Hemlock Grove” is a show (launching in June) that will likely only appeal to a niche viewer.

“For many people here in the audience, you will be grossed out,” Hastings said, alluding to Roth’s forthcoming interpretation of werewolves. “We’re going to push the boundaries.”

The CEO said the endgame is to develop independent franchises at their own pace and build momentum and interest among subscribers accordingly.

He said the difference with “Arrested Development” (bowing in May) and other originals is that the former Fox series already has a built-in audience. As a result, expectations for the dark ensemble comedy starring Jason Bateman are dissimilar. Indeed, Hastings doesn’t envision “Development” continuing beyond season four.

“We have less of stake in it, so it’s really a fantastic one-off that … will be really amazing. But think of it as a non-repeatable amazing,” he said.

Hastings cautioned that Netflix is not transitioning into primarily original programming, saying the shows (less than 10% of programming) complement a “broad enjoyment of all kinds of content” available on the SVOD service.

“If [originals] continue to be successful, we’ll take it up a little bit next year, [and] we’ll take it up a little bit more the year after and we’ll learn as we go,” Hastings said.

He said the evolution of Amazon Prime Instant Video and Hulu Plus has eliminated a fear among content holders in the United States that Netflix was create a stranglehold on the SVOD market.

“Now that Amazon and Hulu are active bidders on most of these properties, there is much more a feeling of openness [among content holders] in bidding us off [against each other] and getting a better price,” he said.

Indeed, Hastings said Netflix was outbid for the SVOD rights to “Downton Abbey” and “Community.”

“It’s an overall healthier situation than it was two years ago,” Hastings said.

Hastings said the power of on-demand programming is “selective merchandizing,” which enables SVOD services to “score” on lesser successes without being held captive to ratings to appease advertisers.

“That’s a fundamental advantage of having a large on-demand subscriber base,” he said, adding that Netflix remains on “probation” from an ill-fated attempt to raise prices and spin off its disc rental business.

“We don’t want to repeat that,” Hastings added.

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