Netflix takes on Hol­ly­wood with orig­i­nal shows

Chief ex­ec­u­tive Reed Hast­ings talks about big changes for the Dvd-ship­ping and video-stream­ing ser­vice

The Washington Post Sunday - - TECHNOLOGY & INNOVATION - BY CE­CILIA KANG Are they happy? Does it make sense to move in Ap­ple’s di­rec­tion and be­come a gate­way for how users get video con­tent — through a set-top box? What’s your re­la­tion­ship like with Ama­zon? Will you ev­ery ad­ver­tise on Netflix? Why not? You alre

Tech gi­ant Netflix is go­ing Hol­ly­wood. As the dom­i­nant paid provider of stream­ing on­line videos, it now sees mak­ing its own videos as the key to its fu­ture. This big bet — and an ex­pen­sive one — turns the ever-evolv­ing com­pany into a chief ri­val of HBO and ma­jor tele­vi­sion net­works.

Chief ex­ec­u­tive Reed Hast­ings was in Washington last week to pro­mote Netflix’ s $100 mil­lion Web-only se­ries “House of Cards,” star­ring Kevin Spacey. He dropped by The Washington Post to talk about the fu­ture of tele­vi­sion en­ter­tain­ment and the ten­sions he’ll have to sort out with his big­gest fren­e­mies — net­works and the tele­com providers that de­liver In­ter­net ser­vices like his to homes.

The com­pany is re­gain­ing steam on Wall Street af­ter a stock freefall last year, fol­low­ing the em­bar­rass­ing mis­take of pre­ma­turely can­cel­ing its DVD mail-or­der busi­ness. Hast­ings changed his mind and an­nounced that the com­pany will keep that ser­vice for at least a decade, he says now — or as long as the Postal Ser­vice sur­vives.

Here’s an edited ver­sion of the dis­cus­sion: What’s in store for the next cou­ple of years? Will you look more like NBC Uni­ver­sal or YouTube?

We want more mem­bers, more con­tent and to serve more coun­tries. The peo­ple at YouTube have that space fig­ured out; it’s all ad sup­ported. For us, we will li­cense more movies, tele­vi­sion shows and cre­ate

more orig­i­nal con­tent. Why do you do orig­i­nal con­tent? For buzz?

For sub­scriber en­joy­ment and the buzz. If there is more buzz, more peo­ple join. But it seems aw­fully high-risk.

That’s how you dif­fer­en­ti­ate. With on­de­mand, you can have dou­bles and not a home run. But net­works can’t. That’s why they have to do pi­lots and pay for over­head. We don’t. We have in­cred­i­ble shows for the Hindi com­mu­nity and other au­di­ences. The whole no­tion of what is a hit is dif­fer­ent. We are about fig­ure out what peo­ple are passionate about. We aren’t try­ing to pro­gram to the low­est com­mon de­nom­i­na­tor. Lin­ear TV has had a one-tomany broad­cast, whether its NBC or HBO. We have more cre­ative latitude. What will the the mar­ket look like in five years?

Lin­ear TV to­day will be like lan­d­line tele­phone. You’ll still have it. Many peo­ple will pay for it but won’t use it very much. The most com­mu­ni­ca­tion will go to the mo­bile phone. Elec­tron­ics will get bet­ter. There will be an iPhone 9 or iPhone 10, and it will be im­pos­si­bly thin and have amaz­ing res­o­lu­tion, and we’ll have in­cred­i­ble band­width.

We’ll have 4K TVs that will be cheap and have large screens. You will con­trol your TV with your smart­phone. So the smart­phone will be the re­mote con­trol for your car, give you di­ag­nos­tics. It will open your house, and it will be your re­mote What are you do­ing to that safe medi­con­trol for your life, too. um? You’ll buy chan­nels like Netflix, Hulu and oth­ers on that We have Open Con­nect, how we con­re­mote con­trol phone. And what­ever nect to their net­works. It’s servers that screen, whether up­stairs, down­stairs or in a ho­tel, will rec­og­nize you from your mo­bile phone-cen­tric­ity. Who will own the pipes for In­ter­net con­nec­tions?

For res­i­den­tial, ca­ble will have their own, fiber will have theirs, too. There will be ra­dio stacks and dif­fer­ent providers. The ques­tion is how much speed will there be and how much com­pe­ti­tion. Do you think we will get de­tached from the mo­nop­oly ca­ble provider?

Billing and bundling will be tricky. I don’t know to what de­gree the bun­dle will break up. More likely than not. HBO in the Nordics is com­pet­ing as a stand-alone [of­fer­ing]. The ques­tion is if the [ca­ble providers] can han­dle the dis­rup­tion. Will your move into con­tent push those changes?

I don’t think so. But we are be­com­ing more like HBO faster than they are be­com­ing like us. We were an In­ter­net com­pany, and then we be­came a con­tent com­pany. Maybe in the long run, there will be two great com­pa­nies bat­tling it out, and that’s fine. That’s good for ev­ery­one. Talk about your re­la­tion­ship with the tele­com ISPs. What are pain points in that busi­ness re­la­tion­ship?

Right now, it’s not really painful at all. The cus­tomer ex­pe­ri­ence is great. You click and you watch. In the long term, there is po­ten­tial con­flict be­cause we’re cap­i­tal­ist and they’re cap­i­tal­ist and ev­ery­one wants to ex­pand their profit pool.

ESPN and HBO get a per­cent­age of to­tal ca­ble cost. Ca­ble costs 70 bucks and ESPN gets like 6 bucks of that.

So we look at it and say, “Hey, there’s a $60 ISP bill that is hugely prof­itable for ISPs. Maybe we should get a part of that be­cause [con­sumers] are get­ting broad­band to get Netflix.”

They say, “One-third of our bits, our costs, are Netflix, and so Netflix should pay part of our costs.”

There will be some bat­tle around there. Our ba­sic view is that there is a safe medium that avoids all the [tele­vi­sion] car­riage bat­tles that we’ve had over 15 years. have all our discs. We bring the servers and con­nect them to their net­works. We have to carry the bits to where they want, to each metro area, at our cost. The ISPs carry them. And we don’t charge them, and they don’t charge us.

Are they happy?

Small ISPs are thrilled. But the big guys, they are used to bet­ter deals than that and they don’t want smaller guys to have the same deal.

Con­sumers want a change in their ca­ble re­la­tion­ship. No one is mad at the equip­ment mak­ers. They don’t say Sam­sung is do­ing things wrong. It has noth­ing to do with the elec­tron­ics. It has to do with ser­vice side. What’s hard is that busi­nesses are in­ter­locked be­tween ca­ble, satel­lite and long-term con­tracts [with net­works]. They sign up for 10 years for ABC stuff and ESPN.

But we are chang­ing that. We signed a deal with Dis­ney where movies like Pixar and Lu­cas Films will only be avail­able on the first pay win­dow on Netflix start­ing in 2016. Does it make sense to move in Ap­ple’s di­rec­tion and be­come a gate­way for how users get video con­tent — through a set-top box?

Con­sumers want a box with mul­ti­ple ser­vices. They want Hulu and YouTube and ESPN. We’re try­ing to be like Google Maps, on ev­ery de­vice. What’s your re­la­tion­ship like with Ama­zon?

Great. We are do­ing great work with Ama­zon Web ser­vices. We com­pete on the re­tail side, bid­ding against each other for NBC and ABC and other net­works. Com­pe­ti­tion is healthy. Dif­fer­ent providers will have dif­fer­ent con­tent.

Will you ev­ery ad­ver­tise on Netflix?

No. Our po­si­tion is like HBO, to be a com­mer­cial-free net­work. Why not? You al­ready have a ton of in­for­ma­tion about users. You could tar­get ads to them, too.

It de­pends on what you are try­ing to at­tract. Part of our propo­si­tion, like HBO, is to dif­fer­en­ti­ate our­selves in a way so that we’re worth paying for. Be­ing com­mer­cial-free is part of that propo­si­tion. How much longer will you keep mail­ing DVDs?

It de­pends on how quickly the Postal Ser­vice has prob­lems. Tax­pay­ers soon will be bail­ing out the post of­fice to a huge num­ber. So we’ll stay in that busi­ness for at least a decade, be­cause peo­ple still need the post of­fice to de­liver So­cial Se­cu­rity checks, medicine, etc. Will you take user-gen­er­ated con­tent? Sports?

Don’t think so. YouTube is al­ready so good at it, and it’s not part of our brand. Same thing with sports; we don’t think we will do that. Movies, TV shows are the main places we are fo­cus­ing and adding more con­tent and get­ting bet­ter. Know­ing that you are in mid­dle of a se­ries and go­ing home to watch the next episode of “Lost” or “Mad Men” is a good feel­ing. We want you to feel that all the time. What do you need from Washington?

There is this ISP bat­tle stuff. In an ideal case, we need noth­ing at all be­cause it will all be worked out com­mer­cially. AT&T and Com­cast in par­tic­u­lar are very so­phis­ti­cated with their reg­u­la­tory mech­a­nism. Yes, we com­pete with them on the video side. but we are also one of the main rea­sons peo­ple get broad­band. What makes you think you are driv­ing broad­band adop­tion?

In peak traf­fic on a Fri­day, 30 per­cent of it is Netflix. But ISPs could say you gob­ble up so much band­width be­cause your ser­vice is so band­width-in­ten­sive.

We don’t gob­ble any­thing. Their users choose to watch us. They sell a ser­vice to their mem­bers, and their mem­bers are us­ing it. What has sur­prised you the most about Washington?

How hard im­mi­gra­tion is. In 1998, I worked hard on H-1B visas, and it’s been a long and hard-fought bat­tle. I’m op­ti­mistic some­thing will pass this year.



Netflix chief ex­ec­u­tive Reed Hast­ings says that the com­pany’s DVD mailorder ser­vice will stick around for at least a decade — or as long as the Post Of­fice sur­vives. Netflix is in­vest­ing big in its Web-stream­ing ser­vice with new stu­dio-con­tent deals and cre­at­ing its own se­ries to com­pete with of­fer­ings from HBO and ma­jor tele­vi­sion net­works.

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