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Tuesday, June 23, 2009

Netflix CEO Reed Hastings Long-Term Goal: Challenge HBO & On-Demand Cable

netflix vs. hboHis idea all started from a $40 late fee. That's when Netflix CEO Reed Hastings realized there was a better way to rent movies. As a result, Netflix,(NASDAQ:NFLX) the leading online movie rental company, was born.
During an interview with Charlie Rose, Hastings recalled the moment his vision was born:


I was driving home and preparing to tell my wife about the late fee, and it made me think, 'I can't be the only one who's struggling with this late fee thing. It just got me started thinking about the Internet and DVDs and how something could work without late fees, and that was the genesis of Netflix.

 Launching Netflix was no small task. Thousands of DVDs had to be shipped each day, and Hasting's company endured the growing pains most start up businesses encounter, but 11 years later, Netflix has more than 10 million subscribers with thousands of more joining each month. Despite Netflix's remarkable recession-proof growth, Hastings isn't savoring in Netflix's impressive growth rate. Instead, he's preparing for the downfall of the DVD industry by focusing on streaming services. His perspective doesn't suprise me. A few months ago, I posted about the possibility of Netflix Watch Instantly library killing movies by mail.

According to an article in today's WSJ, Netflix  says new users attracted by streamed movies have helped push its subscriber total up 25% to 10.3 million at the end of March from a year earlier, which saves Netflix a significant amount:It costs Netflix 80 cents to mail a DVD to a customer's home and back, compared to five cents for bandwidth costs to stream a typical two-hour movie.

Hastings wants to expand the library of streaming movies, but major studios such as Sony are contractually obligated to distribute  to premium cable stations, such as HBO. Another roadblack is studio executives who fear streaming movies could contribute to the downfall of their own DVD and Blu-Ray sales.
Warren Lieberfarb,the former head of Time Warner (NYSE:TWX) Warner Bros. home video division, who helped develop the DVD format, told the Wall Street Journal:

Netflix has yet to show that it has the resources and profitability to be in the markets where licensing is the business policy.

As Hastings continues to plot and posture for Netflix's future negotiations, he's aware of his distinct advantage in the current model, compared to the cutthroat challenges he'll face from premium video content providers such as Apple iTunes movies, Hulu and Amazon. That's why he told the WSJ:

As a capitalist, I'd rather have Blockbuster as my primary competitor than all those Internet companies.

By Matt O'Hern at 12:59 PM | Comments (0)

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