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Netflix chief Reed Hastings extols the virtues of writing big checks in Hollywood

June 1, 2011 | 12:23 pm

 
Reed hastings

Once upon a time, Netflix Inc. Chief Executive Reed Hastings was the tech guy Hollywood loved to hate. These days, he's received more like a doting uncle who gladly hands out big checks.

Hastings acknowledged Wednesday that his movie subscription service is playing a role in driving up the cost of delivering entertainment content online -- but not to an unaffordably high price.

"Definitely, we're on this virtuous cycle, where the more content we have, the more members we get, the more we can pay for content," Hastings said during an interview Wednesday at the Wall Street Journal's All Things Digital conference in Rancho Palos Verdes. "We are paying more for content every time we renew."

AllThingsD’s Kara Swisher pressed Hastings to disclose how much Netflix might pay to renew its  distribution agreement with the Starz cable network, which expires in early 2012. The original licensing deal, struck in 2008, cost a reported $30 million per year, and analysts have speculated that Netflix could pay as much as $200 million annually for a new agreement.

"We haven't done the deal yet, so it's hard to know. [But] that wouldn't be shocking," Hastings said. "We've grown a lot since then, and we can pay a lot more for content."

Hastings said Netflix's subscriber growth has paralleled the addition of new television shows and movies. A year ago, the service had 14 million subscribers; now it boasts 23 million.

The next wave of growth, Hastings said, will come from global markets.

Netflix conducted a trial last September of its Internet video streaming service in Toronto. Hastings said he wanted to learn whether consumers would pay a monthly subscription fee for a video service that did not include the ability to receive DVDs by mail.

"It was a huge success for us in Canada; it continues to grow rapidly," Hastings said. "That gives us confidence."

The international expansion should begin in the second half of the year, Hasting said, noting that the more rapid the growth abroad, "the more money we're going to lose" as Netflix moves country to country. It could take up to three years for each new market to become profitable, he said. 

Hastings declined to identify which countries Netflix would target, although he noted that certain Asian markets look promising -- including Korea, Japan and India.

Entertainment industry insiders told The Times that Netflix executives plan to expand soon to Latin America -- with Mexico and Brazil considered particularly inviting -- and Britain.

Asked to identify Netflix's biggest competitive threat, Hastings said his biggest rivals come not from the digital world, but from more traditional distributors of entertainment: cable, satellite and telecommunications companies. 

Media giants such as Comcast Corp. and Time Warner Cable are offering programs to Internet-connected devices as part of a monthly subscription fee. Hastings singled out Comcast's Xfinity TV application for the iPad, iPhone and iPod touch as "a nice piece of work."

Such developments push Netflix to continue innovating, striving to improve video quality or harness social networks in a way that people are comfortable with, Hastings said. For example, the service is trying to figure out the right way to integrate with the sprawling Facebook social network to find new ways for friends to recommend new TV shows and movies without intruding on people's privacy.

-- Dawn C. Chmielewski

Related:

Netflix eyeing Latin America, Britain for next international launches

Miramax movies to be available on Netflix

Wal-Mart preparing to take on Netflix

Photo of Netflix Inc. Chief Executive Reed Hastings being interviewed by AllThingsD's Kara Swisher at the D9 Conference in Rancho Palos Verdes. Credit to Asa Mathat / All Things Digital.

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