Netflix CEO Reed Hastings had the best line of the day at the UBS Annual Global Media and Communications Conference. Told that last year his company was the object of ”mystique, envy and fear” at the confab, Hastings said: ”Now it’s just pity.” Well, yes — considering that his company’s stock has fallen 77% since mid-July, when Netflix boosted prices by 60% for consumers who wanted to continue to receive DVDs and stream videos. ”We had done so many difficult things that we became overconfident,” Hastings says. “Our big obsession for the year was, ‘Let’s not live and die by DVD.’ ” But the change ”turned out to be a little too fast. … We berate ourselves tremendously for that lack of insight.” But his appearance at the UBS gathering was designed to demonstrate that Netflix is back on track — and that its shares are worth buying again. For investors who believe that Web video is going to soar, ”we’re the leading play on that thesis. … As long as we don’t shoot ourselves in the foot anymore, it’s a great opportunity.” He adds that “there’s no effective competitor for exactly what we do.”
Hastings predicted that within the next 10 years about half of all TV viewing will come via the Internet. He says that TV manufacturers ”want you to live in their device.” While about a third of TV sets sold today can connect directly to the Internet, “in a few years most of the TVs sold will be smart TVs. … It’s a phenomenal revolution.” The biggest loser will be broadcast TV, he says. “It’ll be declining like land-line telephony. … To some degree we’ll look at broadcast in 20 years as being like (telephone) party lines.” And as broadband providers include more fiber optic lines in their networks, they’ll be able to transmit Internet video at speeds of 1 gigabit per second. “Peak Netflix viewing on a Saturday night could still fit through one fiber optic (line),” he says. “A gigabit is a tiny fraction of what’s possible over fiber optic.” Hastings says that providers shouldn’t have to raise prices, or resort to usage-based pricing, to handle all of that Internet video traffic — although they might try to do so. ”It would be unfortunate because it’s not based on the costs,” which are fixed, he says. Consumers also might balk. ”Time Warner Cable tried it a couple of years ago in Texas and backed down. … I doubt it will happen.” Read More »
Reed Hastings’ Apology Fails To Stop Stock Slide
Hastings Says “I Messed Up”; DVD Unit Will Split, Rebrand As Qwikster
The Netflix situation is becoming scary. The stock was down another 9.4% today, to $129.66. That means the company has lost 55.4% of its value since July 11, the day before it announced its decision to split the streaming video service from DVD rentals — upping the subscription price by 60% for those who still want both. Yesterday, CEO Reed Hastings apologized for his PR blunder by trying to gloss over that fact. He adding that the DVD-rental business will have a new name, Qwikster, and begin to rent video games as well. How low can Netflix go? Read More »
Netflix CEO Reed Hastings had better hope that consumers are more forgiving than Wall Street. The company’s shares fell 7.4% on Monday following Hastings’ mea culpa for botching the roll out of Netflix’s decision in July to separate its streaming business from DVD rentals — he tried to gloss over the fact that it would raise prices by 60% for half of his customers, who want both. He also disclosed today that DVDs will be handled by a new stand-alone unit called Qwikster that will begin to rent games for XBox 360, PlayStation 3, and Wii consoles. Netflix’ closing price of $143.75 is about half of what it was just before the July announcement, and down $64.96 from last Wednesday before the company said that its subscriber numbers for 3Q would be lower than it had forecast.
Savvy company watchers say they believe Hastings is scrambling to fix Netflix’ image because its board or large investors — or perhaps both — are becoming panicked. They have a lot riding on the belief that Netflix will remain the Internet’s leading alternative to cable TV and soar as broadband video becomes ubiquitous. Even after the recent drop in value, Netflix stock trades for an extraordinary 21 times expected earnings — nearly twice the multiple for most media companies. That means most of its value comes from investors’ faith that Netflix will become far more profitable than it is now.
But Hastings’ PR blunder … Read More »
UPDATE, 3:25 PM: This is weird. It isn’t just that CEO Reed Hastings wouldn’t comment on the big story of the day — his talks to secure an exclusive streaming deal for DreamWorks Animation’s films. Netflix requires analysts to email their questions, so there was no opportunity for someone to ask a follow-up. Hastings simply says that “we’re always in talks with all of the different providers.” Ugh. As for the price change, Hastings says that although “we feel bad about having customers upset with us,” the company anticipated the widespread anger and still feels “great about the decision.” Netflix wasn’t looking specifically to raise consumer prices, he says. The company wanted to separate the U.S.-based DVD rental business from its global streaming-only business — the main focus now. “The pricing change was an outcome of that.” He says it will generate more revenue for the company by year’s end.
PREVIOUS, 1:27 PM: Looks like Netflix won’t escape unscathed from the 60% price hike for its combined DVD rental and online streaming service. CEO Reed Hastings says in a letter to shareholders that in Q3 “we will see only the negative impact of the pricing change,” with domestic subscriber net additions lower than in the same period last year. Also, revenues “will only grow slightly on a sequential basis.” Still, Hastings defends the price change saying that Q4 could be “our first billion-dollar revenue quarter, driven by strong U.S. performance.” Netflix says that in Q2 it generated $68M in net income, up 54.5% vs the same period last year, on revenues of $789M, up 51.7%. The profit figure, at $1.26 a share, solidly beat the $1.11 consensus among analysts who follow the company. But the revenue figure was light. Analysts expected nearly $792M. Read More »
If you thought that Facebook might be gearing up to compete with Netflix, then think again. Netflix CEO Reed Hastings just joined Facebook’s board of directors. “Facebook is propelling a fundamental change in how people connect with each other and share all kinds of content,” Hastings says. He added that he wants to help Facebook “take advantage of all the opportunities ahead.” The Facebook board also includes CEO Mark Zuckerberg, investors Marc Andreessen, Jim Breyer, and Peter Thiel as well as the Washington Post’s Donald Graham. Hastings also sits on Microsoft’s board.
EXCLUSIVE: Media Moguls With Out-Of-Whack Pay Compensation
My previous post showed that a lot of media company bigwigs have pay that’s out of whack with the other 4 top executives whom the SEC requires these corps to list. Now I want to show the flip side — CEOs that don’t set off alarm bells with corporate governance experts. Top dogs like News Corp’s Chase Carey, Comcast/NBCUniversal’s Steve Burke, Cinemark’s Alan Stock, World Wrestling Entertainment’s Kevin Dunn, Dreamworks Animation’s Jeffrey Katzenberg, Dish Network’s Charlie Ergen, Netflix’ Reed Hastings, AMC Entertainment’s Gerardo Lopez, Regal Entertainment Group’s, and National Cinemedia’s Kurt Hall make no more than 3 times as much as the average for the 4 other top executives whose compensation is listed in the annual proxy statement to shareholders. Let’s be clear: We aren’t saying that the executives below are fairly or unfairly paid. But they work at companies where the boards of directors at least seem to recognize that multiple people deserve the credit for the company’s performance:
1. Microsoft: B. Kevin Turner. Here’s an indication of how technology companies differ from most media ones: Executives in tech don’t depend so much on annual compensation. They typically own a lot of stock and profit when it appreciates. So CEO Steve Ballmer, who owns nearly 4.8% of Microsoft’s shares, is the lowest paid top executive listed in Microsoft’s proxy, with $1.4 million in compensation for the fiscal year that ended in June. Turner, the COO, … Read More »