Peter Kafka

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Netflix CEO Reed Hastings Swears He’s Not Going to Kill HBO: “We Compete Like Football and Baseball”

So we’ve heard what Time Warner CEO Jeff Bewkes thinks about Netflix.¬†What does Reed Hastings think about Time Warner?

He’s full of good will, too! No surprise: The Netflix CEO has always tried to present his company as an ally to Hollywood and the TV guys. So everything should be cool from here on out, right?

The reality is that the studios and TV networks aren’t quite sure what to do about Netflix: They’re happy to take Hastings’s checks, but they’re worried he’s using the money to disrupt their businesses.

So let’s hear Hastings make his case in his own words, via an interview I conducted with him on Tuesday. That’s a day before Bewkes made his latest comments about Netflix and other Web video services. But I don’t think Bewkes said anything that would have changed Hastings’s answers.

I used my time to focus primarily on Hastings’s approach to the TV business, but we touched on some other topics as well, including his take on competition from Amazon and Hulu.

Alas, right after I finished up with Hastings, I realized I had forgotten to ask him about Apple’s new subscription rules and what impact they would have on his Web service. I tried following up, but it was too late: Hastings, via a PR rep, declined to comment.

Here’s an edited and condensed transcript from our talk:

Peter Kafka: There’s been a lot of rumbling from Hollywood about slowing down your growth by delaying or cutting off your access to content, and Time Warner has been the most vocal about this. What happens if they follow through?

Reed Hastings: We license only a small part of our streaming content from Warners today, and we hope to be able to license more as we go. We’ll see what their perspective is on it. But we’re doing great, even though we haven’t licensed essentially any Time Warner streaming content.

But beyond streaming, they could make it much harder for you to distribute their DVDs, too. You have a distribution agreement with them now, but it will expire this year.

Discs I think we should set to the side, because we’re mostly focused on streaming. And on streaming we only license a few shows from them today. It’s a very tiny amount.

And [because they’re] not licensing to us, they’re missing out on a lot of revenue, and we’re putting that revenue into their competitors. We spend a lot of money with News Corp. We spend a lot of money with Viacom. That’s a choice that they’re making.

Do you think Jeff Bewkes is more concerned about your impact on his Warner Bros., or his HBO pay channel?

I’m not sure. You’d have to ask Jeff that.

I ask because in the ongoing cord-cutting/cord-shaving/cord-nevers debate, there seems to be a growing consensus that services like Netflix are most competitive with premium TV like HBO.

We compete with HBO like baseball and football compete. We sell to the same person, we deliver some of the same emotion, but it’s not direct competition. People subscribe to both. And the people who love us often subscribe to HBO.

They don’t have any of the same content we have, and we don’t have any of the content they have. So it’s a pretty indirect competition for time and money.

How many Netflix subscribers also have HBO?

The last time we checked was a couple years ago. It was about a third.

Again, there really isn’t a direct competition. We’re creating this new market where consumers get to choose what they want, and it’s on demand, and it’s a very different experience.

In your last shareholders letter, you specifically referred to competition from Amazon and Hulu Plus. Do you think those are your two biggest threats?

What we said is that they’ve entered the market in the last year, and that we’ve continued to prosper and grow.

You’ve been focusing more energy on acquiring TV programs. And while you keep saying you’re not interested in providing TV shows the day after they air, like Hulu does, many people think that’s what you’ll do sooner or later. How do you look at TV programming?

TV content on DVD was about 20 percent of our viewing. And on streaming it’s about half. The difference between “Terminator” 1, 2 and 3, and episode 1, 2 and 3 of a TV show is not that large. We’ve always been consistent that movies and TV shows are what we do, and we haven’t changed.

We’re not focused on same day [TV shows], because what we really want to do is spend that money on prior. You can buy two or three prior season shows for the price of a same day show. You can get same day on cable, satellite, pretty easily.

What about when you have more money? Would you get into same day then? Or do you always want to be an archival business?

I wouldn’t call it archival. [Comcast CEO] Brian Roberts’s phrase was “rerun TV.” And there’s a lot of great reruns, because you might not catch everything when it’s new and fresh. At least for the next five years, we’re really focused on that rerun model on television, and the pay [TV window] model on movies. And we have our global expansion, which we’re putting a lot of money and time into.

But you are paying for the first run of “House of Cards,” and possibly other shows. That seems like you’re edging closer to premium content.

We like premium content. We just did a big deal licensing “Glee,”and a big deal licensing “Mad Men.” And “House of Cards” is similar except that it’s premiering on Netflix.

So it’s a little bolder and a little riskier than other shows, but we’re not really in the original content business. We didn’t create that content, we didn’t find the script, we didn’t put the cast together, we didn’t talk Kevin Spacey into it. And it’s a small part of what we do, as a test.

If it works, will you build out a staff to find more of this stuff, or develop it?

If there’s a market of buyers, then those shows tend to get developed. We’ll take it year by year and see what happens.

We tried an experiment a couple of years ago with Red Envelope entertainment, where we bought films out of Sundance and similar festivals. And it was very fun, but we lost $10 million, and then we stopped. So we’ll see what we find.

So you don’t see yourself producing originals in the way that HBO does?

Very unlikely, especially given my background. What we’d prefer to be is the buyer of prior season, or expired season, like an “In Treatment.” Or have all the episodes of “Dexter.” We think if we focus on prior season, we can help build audience for current season.

Speaking of expired season, I’ve heard some networks talk about extending the life of shows they were going to cancel if you’re going to pay them to keep going. Does that make sense?

Yes. For example, “Friday Night Lights” wasn’t going to get continued two seasons ago on NBC, and DirecTV did a deal to extend that show. So we can see ourselves doing something like that–extending a season of something that was doing well on Netflix.