Red Envelope Madness!

Monday, February 28, 2005

Reed Hastings Interview

`Consumers are very social and they want to talk about movies'

Q. How did the Hollywood studios react to you in 1999? How did you present Netflix?

A.We tried a number of things, none of which worked until we hired (industry veteran) Ted Sarandos. He knew all the right people. They trusted him. They knew each other. They all had a network of friends that went back 20 years. Ted was able to put those (revenue-sharing) deals together within a year with all the studios. It was very much a hire-the-right-person strategy as opposed to camp-out-on the-doorstep.

Q. How do the studios treat you now?

A. In the first two or three years, the studios were tolerant. And to the degree that they supported us, it was because they wanted more competition in the rental market. Which makes sense for them. And so they were supportive perhaps more than our economics at that time justified.

Now they love us because we do such a great business for them on the hard-to-market films. So, ``Spider-Man 2'' we carry. We have it. Everyone has it. We're not adding any particular value to it. But then, you go into Sony Classics, we do a huge business.

Q. As you examine your innovator's dilemma -- creating a new way of doing business that others attempt to copy -- which companies do you look to for inspiration?

A. The studios know, Wal-Mart is always going to sell more of your DVDs and make you more money. So treat 'em well. But we're going to be the passion brand that helps grow the whole category.

Q. Blockbuster and Amazon are the near-term threats to Netflix. What about long-term threats of video on-demand services?

A. ...the profit on a DVD sale is about $14 to the studio. Whereas VOD or Internet downloads, it's $1 or $2 to the studio. That's why it makes economic sense for the studios to protect DVD sales.

Q. Many analysts predict Netflix will be forced to sell its online service to a larger media company to survive? Is that the case?

A. In the near term, over the next couple of years, we're a strong independent company leading the DVD rental business. As the development of Internet delivery comes, it may be that we need to be part of a Viacom, a Disney, a Yahoo, to compete effectively. We'll see at that juncture. But in terms of the DVD rental business, we're strong, profitable, have $175 million in cash, no debt, we have no need to be part of someone.''
excerpted from MercuryNews.com | 02/27/2005 | San Jose Mercury News.

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