June 24, 2009

Netflix Boss Plots Life After the DVD

Netflix-90.jpgInterview with Reed Hastings by WSJ on what comes after DVDs for Netflix. The idea being that online streaming within 4 years minimizes physical DVD market.

LOS GATOS, Calif. -- Netflix Inc. is a standout in the recession. The DVD-rental company added more subscribers than ever during the first three months of the year. Its stock has more than doubled since October.

But Netflix's chief executive officer, Reed Hastings, thinks his core business is doomed. As soon as four years from now, he predicts, the business that generates most of Netflix's revenue today will begin to decline, as DVDs delivered by mail steadily lose ground to movies sent straight over the Internet. So Mr. Hastings, who co-founded the company, is quickly trying to shift Netflix's business -- seeking to make more videos available online and cutting deals with electronics makers so consumers can play those movies on television sets.

His position offers a rare look at how a CEO manages a still-hot business as its time runs out. "Almost no companies succeed at what we're doing," he says.

Companies across the entertainment and technology landscape are struggling with how to profit from Internet video. There's still significant risk that Netflix could falter or lose out to another company that figures out how to do it first. And having picked his battle, the intense former engineer may risk missing other growth opportunities: Mr. Hastings hasn't yet expanded internationally or mounted a direct challenge to kiosks, such as Coinstar Inc.'s Redbox, that let customers pick up $1-a-night DVD rentals.

Mr. Hastings says he is still considering expansion opportunities outside the U.S. and has no plans to open kiosks.

One of Mr. Hastings's biggest hurdles will be persuading Hollywood studios to give Netflix rights to show more and better movies through its Internet service at a time when many studios are protective of their DVD-sales revenues. Late last year, Sony Corp.'s Sony Pictures threw a hitch into Mr. Hastings's plans when it temporarily blocked access to some of its movies from Netflix's Internet video service in a dispute over whether Netflix had rights to them.

Moreover, Mr. Hastings stumbled in an earlier effort to introduce a set-top box that would bring Internet video service into the living room. Netflix developed the hardware but then abandoned it after Mr. Hastings and other executives got cold feet.

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Posted by staff at June 24, 2009 09:56 AM