Turns out the beginning of the end for subscription TV hasn’t started yet, at least as far as Netflix (NSDQ: NFLX) is concerned. When the number of video subscribers started to drop, they wondered, “Was this the beginning of the end like print?” Then the numbers went up last quarter, CEO Reed Hastings told the Wired Business Conference (and those of us watching virtually). “We think it all was the recession, foreclosures. Fundamentally, the market’s healthy.”
Either way, Hastings continues to profess a lack of interest in competing directly with cable and satellite operators by transforming Netflix into an internet MSO: “We’ve consistently said it would not be profitable for us. We would be unlikely to emerge alive out of that battle.”
Hastings subscribes to Comcast (NSDQ: CMCSA). Why? “It’s got that little thing called sports; news, a big spectacle to watch — then current season TV.” He puts reality shows in that category. Later he added, “It’s not that we can’t do live. We don’t have any advantage.” Why try to be like CNN, which is already fully distributed, or do live streaming just because. “We’re not the ultimate streaming company; we’re the ultimate choosing company.”
Even so, Netflix does compete for attention and money, as long as subscribers are content primarily with “choosier” content on demand.
– Oh Canada: With 800,000 subs and 8 percent of the streaming video market roughly seven months after launching in Canada, Hastings said Netflix is on a path to break even in the first year. That’s given Netflix the “courage” to expand again internationally. The company’s already announced that it will do that in the second half of this year but all Hastings would give in the way of clues as to where is it has to have good broadband, high bandwidth and plenty of potential customers at $8 or so a month.
– On Amazon: Unless I missed it, Hastings skipped over the recent Amazon (NSDQ: AMZN) cloud breakdown, opting instead to emphasize how well things work between the two. He said Amazon CEO Jeff Bezos told him: “We’re over the conflict issue. We want to make money with you. (Having Netflix as a customer) gives confidence to everyone else that it’s a level playing field, safe and good for others to adopt.”
–On Moore’s Law: Hastings says a business plan dating back 12 years applied Moore’s Law to project when streaming large amounts of video would make sense, at least when it comes to speed. They took the 56Kbps baud rates at the time, projected doubling it every 18 months, and came up with 12Mbps in 2012, which Hastings says is close to the average. He called it “amazing that it has followed Moore’s Law exactly for the last 12 years.” By 2020, we will all have a gigabit to the home.”
In a similar way, the nascent Netflix wasn’t ready to acquire streaming rights. “If we had tried to launch streaming in the beginning, it wouldn’t have worked.” Instead, Netflix needed to establish a “core virtuous cycle” of adding subscribers, getting more money to spend on content, acquiring more subscribers, getting more content.