When Netflix announced recently that it had as many subscribers as Comcast, the nation's biggest cable operator, with 22 .8 million paying customers, it felt like another disruptive node to the decline of traditional media. Netflix CEO Reed Hastings, who expects to book $12 billion in revenue this year, spoke Tuesday at the Wired business conference in New York, and was careful to point out that despite the comparison, Netflix is not competing with Comcast or any other cable operator.
"The fear is that if Netflix gets bigger that it tries to become an internet MSO," he said, referring to multiple system operator, the industry term for a pay TV business. "But if you play in too big a market, the incumbents will fight you and you're unlikely to emerge alive from that battle."
Netflix purposefully plays in a niche market and lies somewhere between raw online video (such as YouTube) and a full-fledged pay TV service such as Comcast. (Comcast, which reported earnings Wednesday, lost 39,000 cable subscribers, sinking to 22 .76 million total TV customers.) Mr. Hastings speculated to the audience that offering live TV may not be profitable, and told Ad Age after the conference, "We're not doing live TV. That's not our business."
But despite his pitch that Netflix trucks in a special digital niche, the overall business of video on demand has become a crowded field and now includes an array of established entities such as Amazon and Comcast, with its Xfinity service, as well as emerging digital powerhouses such as Facebook. Mr. Hastings pointed out that Amazon and others playing in this space suffer somewhat from their given strengths. In the case of Amazon, it is known as a dominant online retailer and consumers may not be aware that it even offers video on demand. "It's a branding issue," Mr. Hastings said.
While the CEO stressed Netflix's unique proposition as a wealth of rerun TV, Hulu Plus , the recently launched pay version of the free service, also offers on-demand viewing of the current season of shows on ABC, NBC and Fox content as well as a range of Viacom properties such as "The Daily Show" and "Jersey Shore." Hulu Plus offers a large library of rerun content, much like Netflix, for the same $7.99-per-month fee.
"Hulu Plus launched about nine months ago but we've been able to grow in that time," Mr. Hastings told Ad Age . "I think we're doing alright."
The other significant ongoing challenge for Netflix is maintaining good relations with vendors such as Time Warner , which has viewed Netflix's growth with some envy and whose CEO, Jeff Bewkes, recently told Ad Age that they're open to more streaming deals with Netflix, but are trying to remain agnostic. "We're just trying to be on any platform that allows us to sell our movies and content," Mr. Bewkes said. The media conglomerate's studio division, along with Sony, Universal and 20th Century Fox struck a home-streaming deal with DirectTV that will allow people to watch new releases in the comfort of their own homes just two months after a movie's theatrical debut. Warner Brothers has also started renting movies via Facebook, which takes a 30% cut of the $3.00 rental fee.
Time Warner recently launched its HBO Go product for the iPad, which allows existing HBO subscribers to watch the full fleet of the cabler's premium content through the iPad. The recent and rapid proliferation of digital delivery services now plays to the content creator's advantage.
When asked what he thought about Mr. Bewkes' recent praise of Netflix, Mr. Hastings said, "I guess we're doing a good job with supplier relations." But he added that Netflix would still like to do more streaming deals with Time Warner , too. "We like working with them," he said. "We're looking for more, of course."
Netflix more than doubled its net income in the first quarter of this year to $60.2 million on revenues of $719 million.