Reed Hastings: ‘We Can Live Without’ Starz

8 Dec, 2010 By: Erik Gruenwedel

Reed Hastings

Netflix co-founder and CEO Reed Hastings Dec. 8 threw a wrench (or bluff) in the much-anticipated license renewal talks with Starz Entertainment when he said the subscription service could succeed without the aggregator’s content.

Speaking at an investor event in San Francisco, Hastings said Netflix would try to renew the deal but would not become an economic hostage either.

In 2008, Netflix signed a $30 million annual license agreement with Starz, giving it access to theatrical fare, including major movies from Disney and Sony. Media analysts and Wall Street contend it is paramount that Netflix renew the deal in part to satiate its growing dependence on streaming. The renewal is expected to cost Netflix upwards of $250 million per year in license fees.

“We can live without it if we have to,” Hastings said. “It is not essential to our success.”

He cited the example of Showtime Networks years ago dropping Paramount Pictures as a content partner when it determined its subscribers could do without. Hastings said there exist numerous smaller deals with smaller studios that are not as big as Starz, and more in line with its recent deal with Relativity Media.

Regardless, Hastings believes a deal can be worked out.

“They have content, we have money, so unless we are idiots, we ought to find some way to make it work over the next couple of years,” he said.

The CEO reiterated Netflix is focused on streaming TV programming (unlike discs, which he said are partial to movies), and has a longstanding policy to not allow one content provider to account for more than 20% of its content views.

“TV shows dominate movies in total viewing,” Hastings said.

The executive welcomed scuttlebutt studios want to expand the 28-day window for new releases at retail, saying such a move would be a benefit for disc sales and transactional VOD. Its effect will only resonate with consumers once all studios are on board.

“If all the studios choose to do [windows] and it becomes a standard model, it will be an even bigger effect on DVD sales and VOD transactions. And that’s good for the industry,” Hastings said. “That hasn’t really happened yet.”

He such a scenario would result in better terms for Netflix in the long run. Hastings it would make no sense for one studio to have a 45-day window, another had 29 days and another had 62 days, which would lead to consumer confusion.

“I don’t think the actual days matter that much,” he said. “What matters is that there is a practice so the consumers come to understand that.”

Barclays Capital projects Netflix disc rental shipments to peak in late 2011 or early 2012. Hastings characterized projected 5% to 10% rate of decline in disc shipments as “a non-issue.”

Indeed, outgoing CFO Barry McCarthy, who is leaving the company Dec. 10, said Netflix is in excellent financial shape and investors betting the stock will decline might want to reconsider.

“Not sure you want to be short this quarter,” McCarthy quipped.

The CFO said the time was right to leave, and that doing so while at the top was a luxury. McCarthy, who sold nearly half his stake in Netflix in recent weeks, said he would look into running a company sometime in the future — a break that includes trips to Hawaii and New Zealand.

“I don’t anticipate competing against my life-long friends at Netflix, I continue to be a big shareholder and I’ll be rooting for their success for a long time,” McCarthy said.