Reed Hastings, Netflix

Asa Mathat

Media


Liveblog Highlights:

  • Hastings continues to call out Comcast for “taxing” the Internet. “They want the whole Internet to pay them for when their subscribers use the Internet.”
  • Hastings wants to avoid government intervention, “but right now we don’t have anywhere close to that agreement” with Comcast and other providers to avoid that.
  • Netflix had no choice but to pay Comcast for faster content delivery “because the deal was better than the prior state,” Hastings claims. “We felt we had to.”
  • Netflix isn’t interested in acquiring sports rights. “Sports … we don’t have any bandwidth for, any money for,” Hastings says.
  • Hastings says Netflix does not, and will not, suggest changes to plot or characters based on viewership data and trends.
  • Hastings doesn’t believe Netflix needs to be acquired to compete long-term against the Amazons, Googles and Apples of the world.
  • Netflix should have grandfathered in customers for two years when it tried to raise prices and spin off its DVD business into Qwikster, Hastings says.
  • “A few people” are sharing Netflix viewing on Facebook, but “auto-sharing hasn’t yet panned out.”

Netflix has been on a roll.

The Internet video service now boasts 35.7 million domestic subscribers, widening its gap on rival premium TV channel HBO in the U.S. It announced plans to enter France, Germany and four other European countries later this year — its most aggressive expansion since 2011.

Netflix’s investment in original content also appears to be paying off. The second season of its political drama, “House of Cards,” is attracting “a huge audience that would make any cable or broadcast network happy,” Chief Executive Reed Hastings said in a recent note to investors.

A new season of its acclaimed prison comedy, “Orange Is the New Black,” returns June 6, and Netflix has other original series coming, including “Marco Polo,” a psychological thriller from the creators of “Damages,” and Marvel’s “Daredevil.”

At the same time, competition for viewers’ time continues to intensify. Cable, satellite and telecommunications companies are improving their TV Everywhere services, which give subscribers access to the TV programming they already pay for on portable devices. Meanwhile, online video services Hulu and Amazon are increasing their investment in original content.

The biggest concern for Hastings, though, is Comcast’s proposed acquisition of Time Warner Cable. The merger would give the combined company about one-third of the nation’s broadband subscribers, according to MoffettNathanson. Hastings has argued that such a concentration would give Comcast unprecedented control over high-speed Internet access — and the ability to drive up costs for services like Netflix that are trying to reach these subscribers in their homes.

In his appearance at the Code Conference, Hastings said the issue of net neutrality wouldn’t arise if cable companies had competition bringing high-speed Internet into the home. But that’s not the case: AT&T and Verizon invested tens of billions of dollars to compete with cable, and pulled the plug in 2010 — saying they couldn’t compete.

Although prices are not an issue now, Hastings said the concern is that cable operators will begin raising the prices services like Netflix, who are attempting to reach millions of subscribers in their homes.

“If you charge a little bit now, they’ll charge more and more and more,” Hastings said. “They want the whole Internet to pay them for when their subscribers.”

Hastings said he would like to avoid government regulation if all of the cable companies and Internet providers agree to net neutrality and have it built into its terms of service.

“We don’t have anything close to that level of agreement,” Hastings said.



Dawn Chmielewski Dawn Chmielewski May 29, 20148:20 am

Good morning everyone! Reed Hastings should be taking the stage in 10 minutes.  

Dawn Chmielewski Dawn Chmielewski May 29, 20148:43 am

The final session is about to begin.

Dawn Chmielewski Dawn Chmielewski May 29, 20148:44 am

“Orange Is the New Black” season two trailer is airing. Don’t you wish you were here?

Dawn Chmielewski Dawn Chmielewski May 29, 20148:47 am

Here’s a question: Brian Roberts says Netflix wants to delver a third of the content on the Internet but you don’t want to pay. What’s up?

Pete Mall May 29, 20148:48 am

Dawn Chmielewski Dawn Chmielewski May 29, 20148:49 am

Hastings says we asked them for access to their customers. The performance across Comcast starts to decline and decline. He says Comcast wants to be like the Post Office — a big national monopoly.

Dawn Chmielewski Dawn Chmielewski May 29, 20148:50 am

Netflix ultimately signed a deal. Now that the company did the deal, every other distributor wants to be paid, too.

Dawn Chmielewski Dawn Chmielewski May 29, 20148:50 am

Kafka: I pay taxes to use the road. By the way, it’s minimal. What’s wrong with paying for the pipes?

Dawn Chmielewski Dawn Chmielewski May 29, 20148:51 am

Hastings: The key thing is the principle. You charge a little bit now, but gradually, they’ll charge more and more and more. “Not just us, but to the whole Internet.” They want the whole Internet to pay them.

Dawn Chmielewski Dawn Chmielewski May 29, 20148:52 am

Hastings says we’re 30 percent of the Internet. We offered to pay 30 percent of the costs if we get 30 percent of the revenue.  Comcast said no way.

Pete Mall May 29, 20148:52 am

Dawn Chmielewski Dawn Chmielewski May 29, 20148:53 am

Hastings says cable is nearly a monopoly. If they had a lot of competition, it wouldn’t be a problem. What you’ve really got is only fiber. AT&T and Verizon put in tens of billions of dollars competing with cable. They stopped. Cable is going to be the entire residential internet. 

Dawn Chmielewski Dawn Chmielewski May 29, 20148:53 am

Kafka: Do you have any hope of anyone else delivering content to people’s homes?

Dawn Chmielewski Dawn Chmielewski May 29, 20148:54 am

Hastings: It’s pretty much a natural monopoly. If you have a monopoly structure, you need some protections. That’s why we’ve been talking about creating an Internet with no slow lane.  

Dawn Chmielewski Dawn Chmielewski May 29, 20148:54 am

Swisher: Why is this only you standing up?

Dawn Chmielewski Dawn Chmielewski May 29, 20148:57 am

Hastings: Someone has to stand up for what’s important. We’re raising the question – they’ll have 40 percent of residential Internet – what does it mean when one company has that kind of control?

Dawn Chmielewski Dawn Chmielewski May 29, 20148:57 am

Hastings: Most of the concern is on residential Internet, where there’s a natural monopoly.

Dawn Chmielewski Dawn Chmielewski May 29, 20148:58 am

I think they’re embracing data as the best business they’ve ever seen, because they don’t have to pay content costs.  

Dawn Chmielewski Dawn Chmielewski May 29, 20148:58 am

Kafka: When is someone in the tech sector going to buy sports rights? Any interest in buying NFL rights?

Pete Mall May 29, 20148:58 am

Dawn Chmielewski Dawn Chmielewski May 29, 20148:59 am

Hastings: We have a lot of great original content coming up, including “Orange Is the New Black.” So sports, we don’t have any bandwidth for, any money for. Live in general isn’t a big area for us — but it’s just beginning. 

Dawn Chmielewski Dawn Chmielewski May 29, 20149:00 am

Hastings talks about upcoming shows, including “Marco Polo” filmed in Malaysia. A flood of content is coming that will dwarf what’s happened to date.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:01 am

Hastings talks about how “Orange Is the New Black” is breaking new ground, featuring Laverne Cox, who has become the face of the trans community.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:02 am

Hastings equates Netflix to the evolution of cable networks. “We tried in 2005 with Red Envelope Entertainment,” creating original content. It didn’t work, so they shut it down. Restarted in 2010.  

Dawn Chmielewski Dawn Chmielewski May 29, 20149:03 am

Kafka: I talk to people who make the content for you, they say it’s great to work for Netflix because you leave them alone. Will you take the data and use it to influence content?

Hastings: We won’t do that.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:03 am

Hastings: We’re very artist-centric. If you have great creators and you give them freedom, you can end up with great product.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:04 am

The data is key on who to promote the content to. Not every show is for every person. It’s not about how to create the show or which characters should live or die.  

Dawn Chmielewski Dawn Chmielewski May 29, 20149:05 am

In the opening season of “House of Cards,” in which Frank Underwood’s character strangles a dog, a lot of people turned the show off. We told David Fincher that. He said don’t ever do that again.

Pete Mall May 29, 20149:05 am

Dawn Chmielewski Dawn Chmielewski May 29, 20149:06 am

Hastings says the data is like a big matching system. Finding the right audience for the upcoming comedy, “BoJack Horseman.”

Dawn Chmielewski Dawn Chmielewski May 29, 20149:06 am

On any given day, Hastings says, it’s thousands and thousands of shows. 

Dawn Chmielewski Dawn Chmielewski May 29, 20149:07 am

Kafka: Do you worry about networks not giving you their best shows?

Dawn Chmielewski Dawn Chmielewski May 29, 20149:07 am

Hastings says they don’t give us their best stuff — their current season. But what the networks have discovered is putting past seasons on Netflix can build audience for shows like “Breaking Bad.”

Dawn Chmielewski Dawn Chmielewski May 29, 20149:08 am

Swisher: Google, Amazon, Apple really are pushing it forward. Do you worry? These people have more money than you do and more subscribers. They all have devices. How do you look at that?

Dawn Chmielewski Dawn Chmielewski May 29, 20149:09 am

Hastings: We’ve been public for 12 years, we haven’t acquired anyone. What we can do is focus on incredible shows at the junction of Hollywood and Silicon Valley.  You say they have deep pockets. In the late 1990s, Microsoft had a lot of money but Apple out-innovated them.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:09 am

At one point, competitors dismissed the upstart, saying “Let Netflix have the envelope-licking business.”

Dawn Chmielewski Dawn Chmielewski May 29, 20149:10 am

Karka: Are you the cord-cutter’s dream, or do you work with the pay TV infrastructure?

Dawn Chmielewski Dawn Chmielewski May 29, 20149:10 am

Hastings: You can only get “Game of Thrones” on HBO, and only get “House of Cards” on Netflix. We’re complementary, but we compete for time. The way we win is with great programming.  

Dawn Chmielewski Dawn Chmielewski May 29, 20149:11 am

Hastings: Not interested in doing a device. There’s no advantage to us doing a device. We work on over 1,000 devices.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:12 am

Kafka: At one point, you noted the stock euphoria when the price approached $400. 

Hastings: There was this enormous euphoria. We’ve been down, we’ve been up. 

Kafka: What’s the point in saying that?

Hastings: It’s just honesty.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:15 am

Question from audience: Why did you get out of the DVD business?

Hastings: It was obvious the big risk to the company was always to grow and die with DVD. It was clearly a hard problem. We had to be so aggressive it made our skin crawl, that’s how much risk we had to take. We came up with this idea of separating the DVD business with Qwikster. It didn’t work out. 

The big thing we missed, if we had grandfathered everyone for two years it would have worked. And the 60 percent price shock was tone deaf. Hastings admitted he had been arrogant.  

Dawn Chmielewski Dawn Chmielewski May 29, 20149:15 am

Hastings: That’s a mistake I’ll never make again.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:16 am

Question: You’re articulate on net neutrality, but some think it’s self-serving. I wonder if you change your argument a bit, and get to this argument, as consumers use more electricity, they pay for it. If the consumer wants to pay $40 for Netflix, that’s the answer.

Pete Mall May 29, 20149:17 am

Dawn Chmielewski Dawn Chmielewski May 29, 20149:17 am

Hastings: We’re a company that represents our own interests.

This whole battle, net neutrality, has been going on for the last 10 years. The Comcast/Time Warner merger brought it to the fore.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:18 am

When you listen to the radio more, it doesn’t cost you more. But with gasoline, you pay more.

The Internet is much closer to radio than to gas. There’s only a marginal increase in costs.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:18 am

Question: What about International licensing of programming?

Dawn Chmielewski Dawn Chmielewski May 29, 20149:19 am

Hastings: It’s like sports rights, there’s bidding. The way it will come together over time, there’s never been a global distribution network. The Internet has enabled this. YouTube is global. Over time, we hope it will be Netflix.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:20 am

Question: Talk about the backlash on Facebook with sharing Netflix viewing.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:20 am

Hastings says sometimes you get excited about something, you try it, and if it doesn’t work, you move on.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:21 am

Question: Where do you get new customers?

Hastings: From existing customers. Word of mouth. And also from great content, like “House of Cards.”
Dawn Chmielewski Dawn Chmielewski May 29, 20149:22 am

Question: Americans pay a lot of money for cable and services like yours. Now you need to get six or seven services these days. Is there a breaking point for consumers?

Dawn Chmielewski Dawn Chmielewski May 29, 20149:22 am

Hastings: I don’t think there’s a societal breaking point. What the Internet enables is a choosing. You choose the programming you want.

Dawn Chmielewski Dawn Chmielewski May 29, 20149:23 am

Q: Why should  Netflix have Internet transit for free?   

Dawn Chmielewski Dawn Chmielewski May 29, 20149:24 am

Hastings: We think we should bring the data to them, and we think the free standard should apply to wholesalers, such as Level3 and Cogent. The wholesalers should get this free rate, and are not charged. It’s fundamentally should Comcast be able to charge everyone else for access to their subscribers?




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