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June 1, 2011 at 8:16 AM

D9: Netflix boss on new content, cutting cords but no Ballmer

RANCHO PALOS VERDES, Calif. — Netflix Chief Executive Reed Hastings is starting the second day of the ninth All Things D conference today, explaining details of his online video company that has grown from 14 to 23 million subscribers over the last year.

Opening questions by co-host Kara Swisher about Netflix driving up the cost of online video content were deflected.

“Definitely we’re on this virtuous cycle where the more content we have the more members we get and we can pay more for content,” he said.

As long as growth in content expense roughly parallels the subscriber growth, about 35 percent gross margins

On the relationship with Hollywood:

“The whole relationship thing is overstated. If you have a big checkbook, you can do business.”

Hastings said Netflix is a complement to the business of new movie releases distributed through premium channels such as pay-per-view.

“Consumers want us to have all the new stuff but the new stuff is very expensive – you can’t have all the new stuff and the $8 a month price we have.”

Hastings said all video services are moving toward Internet delivery. Even though Netflix is complementary to cable, satellite and TV networks, it’s still competing in some ways with them.

“In the long-term we’re all competing” for consumer’s time and a share of their wallet, he said.

New competitors include cable and satellite companies that develop “TV everywhere” services. To compete, Netflix has to “continue to push the edge of Internet television” with higher definition services, social features and other advances.

Hastings said he has no interest in selling Netflix to Apple or another larger company.

“No, we’re very focused on growing our business,’ he said. “We have a very long term, great future.”

That future includes international expansion beyond the U.S. and Canada, though Hastings wouldn’t say which country is next. A decade or two in the future, the target market will be the 5 billion or so people around the world who now have cell phones, he said.

Shorter term, Hastings said he’d like to get more of the last season’s shows – such as series from HBO and Showtime.

Swisher asked, why doesn’t Netflix have those shows yet? “The check’s not big enough yet,” he said.

Looking forward, Hastings expects most TVs to be connected to the Internet and have app stores built in. This year half the TVs sold will be connected, he said, but for now laptops are still where most Netflix content is watched.

“The Internet TV is the big story,” he said.

Yet statistically, most people aren’t yet “cutting the cord” – subscriptions to cable and satellite service are actually growing, Hastings said.

What do you think about stories about Netflix consuming all of the Internet’s bandwidth?

“We prefer to think of it as the consumers prefer Netflix,” he said, then explained that Netflix has a big presence in the “last mile” to homes versus the net backbone.

Swisher asked Hastings about his decision, as a Microsoft board member, to back Chief Executive Steve Ballmer despite recent calls for Ballmer to be replaced. Hastings declined to comment on that one.

Asked by an audience member about the lack of particular movies, Hastings explained that the company made a business decision to have a limited selection of titles available to stream and keep the price at $8 per month. The service isn’t intended to be a comprehensive, encyclopedic collection of movies and TV shows, which are more broadly available through pay-per-view services and disc rentals.

Another person in the audience asked whey there aren’t social features on Netflix, such as the ability to suggest a movie to friends. Hastings said Netflix started to build these but dropped the effort in 2008 and is now working on a way to connect the service with Facebook to provide sharing and social features.



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