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Reed Hastings: ‘We Got Overconfident’

6 Dec, 2011 By: Erik Gruenwedel

Reed Hastings

Beleaguered Netflix CEO said subscribers will stream more than 1 billion hours of content in the current quarter

Netflix’s rebuilding effort turned another page Dec. 6 when co-founder and CEO Reed Hastings took center stage at an investor event to take responsibility for company’s recent missteps as well discuss plans to turn it into a global brand.

Speaking at the UBS Global Media and Communications Conference in New York, Hastings said the price hike to a popular hybrid disc/streaming program and scuttled spin-off of a stand-alone disc rental service (“Qwikster headfake,” he quipped) resulted from an internal obession with streaming and belief that the company didn’t want to “live and die with DVD.”

Hastings said that as management immersed itself with streaming, it all but ignored disc rentals — agreeing to split the plans and let DVD become a “comfortable drift.”

Instead, subscribers balked at the price hike and terminated memberships in droves, with 800,000 net subs more than expected departing the service in the most recent quarter. Netflix’s stock plummeted in value, losing nearly 80% of its value in just three months.

“We became a sort of ‘Bank of America’ symbol, which is super unfortunate,” Hastings said, referring to the bank’s recent scuttled effort to impose fees on debit card transactions. “We got overconfident. We berate ourselves tremendously for that lack of insight because it didn’t need to be that way.”

He said Netflix is not losing sleep over recent events and that over time nobody would remember it.

“Did we suceeed in streaming is all that people are going to care about in three or five years,” Hastings said. “We’re charging ahead.”

Indeed, the CEO said Netflix envisions becoming a global brand going after two-thirds of the world’s “entertainment GDP” — a reality Hastings said would pave the way for global content rights.

Hastings — underscoring his Peace Corps. roots — said Netflix could evolve into an aggregator of the “world’s best content for the world’s citizens.”

“That’s our 10-year ambition to pull that off,” he said. “We’re patient. It’s going to take a long time.”

Back to the present, Hastings said he believes pay-TV channel HBO — or or its mobile app HBO Go — is Netflix’s biggest competitor, not Amazon Prime, Hulu Plus, YouTube or Verizon’s rumored SVOD service.

“They’ve got a lot of content and a global brand,” he said. “Today, they are kind of in a guilded cage on top of a MVPD system that works well for them.”

He said HBO is not currently competing directly with Netflix — a scenario Hastings said could change at any time.

“The funny thing is that HBO is becoming more Netflix-like, going over the Internet and streaming,” Hastings said. “And we’re becoming more HBO-like, winning the bidding for ‘House of Cards,’ and doing originals [programming].”

He said both companies will spend from $1 billion to $2 billion on content in the next year. Hastings said upwards of 15% of Netflix’s content spending will be on new original programming.

“The two of us will compete for a very long time, hopefully make ourselves better through that competition,” he said. “And it could easily be that we both end up substantial growth [with] tens of millions of subscribers.”

The CEO believes many consumers will subscribe to both services because of distinct content offerings and distribution channels.

“It’s not a winner-take-all, there will be the two channels … and in a good scenario we’ll push each other like two runners to do more innovation and more ambition and have us both succeed,” Hastings said.

Interestingly, the CEO did not mention Microsoft’s Xbox 360, which this week aggressively launched a reboot of the membership-based Xbox Live platform featuring streaming access to myriad third-party content providers.

When asked about it, Hastings downplayed Xbox Live (which also features Netflix streaming) as a competitive threat compared to HBO. It should be noted that Hastings is a member of Microsoft’s board.

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