“Fox and Warner are both pretty powerful companies today. … I don’t know how it changes much if they come together,” Netflix Chief Content Officer Ted Sarandos told analysts today when asked about Rupert Murdoch’s bid for the entertainment giant. The effort probably has “more to do with cable negotiations with sports.” CEO Reed Hastings added that he would offer “no speculation” about what Netflix might do if Fox and Time Warner agreed to merge. “The more we work directly with producers, the less we have to worry with aggregation and big content suppliers.”
On other matters: Sarandos talked up Chelsea Handler’s upcoming late-night talk show, saying her focus on entertainment and pop culture will make it “a great representative of the kind of programming on Netflix.” A nightly show makes sense for a company known for binge viewing because viewers are “not watching late-night talk shows the way they used to. They’re watching days weeks and sometimes months later.” The show ”is not instantly perishable content. It’s more perishable, but the economics level that out for us.”
Shares are up about 2% in early post-market trading, though probably mostly due to subscriber gains — topping 50M streaming customers worldwide for the first time — rather than the financial results for Q2. Netflix generated $71M in net income, up from $29.5M in the period last year, on revenues of $1.34B, +25.4%. While the growth is impressive, it was also expected: Revenues came in just a little ahead of the $1.33B that analysts anticipated. Earnings at $1.15 a share were a penny shy of the consensus forecast.
But the company says it had 36.24M domestic streaming customers at the end of the quarter, up 570,000 from March, which it attributes to “our ever-improving content offering, including Orange Is The New Black Season 2.” Netflix expects an additional 1.33M in Q3. On the international side, streaming customers increased by 1.12M over the three-month period to 13.8M. But the company lost 342,000 DVD-by-mail customers, ending the quarter with 6.17M.
Here’s the latest indication that it’s difficult to interest investors in corporate democracy as long as the stock price keeps rising. Following a 12-month period when Netflix shares appreciated 92%, its shareholders today defeated several proposals at their annual meeting that would have given them more leverage to check CEO Reed Hastings‘ clout at the streaming video company. The most hotly contested one, from New York City’s pension funds, called for an independent chairman — essentially requiring Hastings to give up half of his dual role. It passed last year, but failed this time with 47% support. Supporters including proxy advisory firms Institutional Shareholder Services and Glass, Lewis say the chairman is supposed to help the board assess the CEO’s performance, making it a conflict of interests when one person holds both jobs. Netflix said in its proxy that it makes sense for Hastings to be chairman “because he is the director most familiar with the Company’s business and industry and is therefore best able to identify the strategic priorities to be discussed by the Board.”
Is your company facing an existential threat from a looming technology shift? If so, Netflix CEO Reed Hastings has some suggestions, like don’t forget about the customers you already have while figuring out how to attract new ones. Speaking today at the Code Conference in Rancho Palos Verdes, CA, Hastings said Netflix was too concerned with the wrong issues when it spun off its DVD-by-mail business in 2011 to focus on online movie delivery. “In hindsight, we were so focused on not dying with DVD,” he said. “We looked at all these businesses [with collapsing business models] like Kodak and Blockbuster. It was really a hard problem.”
Netflix created a new unit called Qwikster for the DVD-by-mail business, while keeping online delivery under the Netflix name. People who still wanted both physical discs and streaming options had to set up a separate account for each. “It turned out it didn’t work out at all,” Hastings said. “We mispredicted a number of factors.” Like charging more to have both accounts. “It turned out that approach really annoyed customers,” the exec said. “We learned an important lesson: The fact that your company may not be strategically positioned for the next 10 years, [customers] don’t care about that.”
Netflix cut a controversial deal with Comcast earlier this year to improve its shows’ transmission quality because it didn’t have a choice, said CEO Reed Hastings. But that didn’t mean Hastings liked it, or thought it was the right thing in the long run for either his company or the Internet as a whole. That’s why Hastings publicly criticized the deal less than two weeks after signing it, he said. “The basic thing is we have no power” over Comcast, Hastings said in discussing the deal at the Code Conference in Rancho Palos Verdes, CA. “We asked them for access [to their mutual Internet-using customers], and couldn’t get it. You might say, ‘Why did you compromise on the deal,’ and we would say, ‘We had to.’”
Netflix and Amazon are streaming-service rivals, but today the two were united as defendants in a multimillion-dollar defamation and wrongful-termination lawsuit by a former employee of both companies. In his suit filed in Los Angeles Superior Court (read it here), which also names top Netflix execs Reed Hastings and Ted Sarandos as defendants, Jerry Kowal is seeking at least $1 million — and damages potentially worth millions more. The former Director of Content Acquisition for Netflix claims he was “blacklisted” by the company after he left to join Amazon’s streaming business and that Netflix falsely accused him “of stealing confidential information, disclosing confidential information to Amazon, and using confidential information to compete against Netflix.” In what the suit refers to as “the proverbial David and Goliath,” Kowal says Netflix “did everything it could to dissuade him” from leaving to join Amazon. And when he did exit in June after a year on the job, Netflix “proceeded to interfere with Kowal’s employment with Amazon in a malicious attempt to ruin his reputation and prevent him from working there and leverage its substantial business relationship with Amazon to guarantee that Kowal would be terminated from his position at Amazon and would be substantially hindered in his efforts to secure comparable replacement employment.” Read More »
Will Netflix end up challenging Comcast’s $45.2B deal to buy Time Warner Cable? It didn’t look that way last month when they made what they described at the time as a “mutually beneficial” interconnection deal that involved Netflix payments to Comcast.But the streaming video company’s chief Reed Hastings cast the agreement in a different light in a blog post today. He called the payments an “arbitrary tax” that he had to pay to improve the quality of transmissions which had slowed on the cable company’s systems. “If this kind of leverage is effective against Netflix, which is pretty large, imagine the plight of smaller services today and in the future,” he says. He also called this a net neutrality issue, even though it involves Netflix transmissions to Comcast — not the ones the cable company sends to subscribers. Without what he calls “strong net neutrality,” major Internet providers including Comcast “can demand potentially escalating fees for the interconnection required to deliver high quality service.” That will drive up consumer costs: “For any given U.S. household, there is often only one or two choices for getting high-speed Internet access and that’s unlikely to change. Furthermore, Internet access is often bundled with other services making it challenging to switch ISPs. It is this lack of consumer choice that leads to the need for strong net neutrality.” Comcast, he says, “has been an industry leader in supporting weak net neutrality.” Netflix … Read More »
Many investors fear that Netflix is committing too much cash to original productions — but Chief Content Officer Ted Sarandos told analysts this evening not to fret: While his recent project commitments will take spending on original programming “up pretty dramatically,” they will still account for less than 10% of Netflix’s total content costs. “Keep in mind, it is within the forecasted content spend, not in addition to.” He also talked up the benefits of series including House Of Cards and Orange Is The New Black. “The audience for those shows is continuing to grow, as we hoped.” And he has seen “nice spikes” over the last few months as they’ve attracted awards attention. Netflix has added director commentary to House Of Cards, and Sarandos noted that many subscribers are re-watching the series ahead of its second season which will become available next month. The all-at-once release strategy doesn’t result in diminished interest on social media, he adds. For example, Google Trends showed that with House Of Cards and a similar serialized thriller out at the same time, FX’s The Americans, “week over week over week there was more chatter” about Netflix’s show. Sarandos wouldn’t confirm or deny Netflix’s aspiration to also produce big budget movies, but reiterated his case for entering the business. “To consumers, the line between a movie and TV is getting pretty blurry,” he says. “We want to … Read More »
Now this would be a cameo that would render even Kevin Spacey’s Frank Underwood speechless. Reed Hastings today publicly hit up President Obama to appear on House Of Cards, in which Spacey plays the loquacious, ambitious and ruthless U.S. congressman. A little less than two months before Season 2 of the show debuts, the offer from the Netflix CEO came during a photo op at the White House this morning as Obama met with Hastings and other tech company CEOs and bosses to discuss the troubled Obamacare website and the government’s national security surveillance efforts. According to the White House pool report, the President was overheard asking Hastings, “I’m just wondering if you brought advance copies of House of Cards?” The report adds, “the exec laughed and invited Obama to do a cameo on the series.” The President also joked that Spacey’s Underwood is “getting a lot of stuff done” and “I wish things were that ruthlessly efficient” in the real-life DC. That drew a big laugh from Hastings, Apple’s Tim Cook, Yahoo’s Marissa Mayer and the 12 other tech bosses in attendence. Listen carefully and watch the exchange between Obama and Hastings:
Obama isn’t the only prominent DC resident to be a fan of the show. House Of Cards has been a favorite of many politicians since its February 1 debut this year. So much so that Spacey even starred in a House Of Nerds video mocking DC at this spring’s White House Correspondents Dinner. Read More »
A lot of tidbits from Netflix‘s quarterly conference call with analysts — including the fact that the final season of Breaking Bad won’t be available on the service until 2014. But one of the most interesting disclosures is that the execs want to back movies — which they would transmit to living rooms faster than conventional Hollywood productions do. The company is “actively looking at documentaries,” Chief Content Officer Ted Sarandos says, though he adds that he’ll “keep my mind wide open” for other genres. The company’s intrigued in part because it wouldn’t have to wait for its titles to sell on home video before it can stream them to subscribers. “Even though that window is moving, it isn’t moving aggressively enough,” he says. A more aggressive timetable “would be good for our members.” But he squashed a recent report in The Wall Street Journal that said Netflix might be interested in cutting a deal to offer NFL games. “We’re still not interested in sports,” he says, calling matches “primarily a linear experience.”
The online streaming and DVD rental service can take one putative securities class action out of its instant queue. A federal judge Tuesday dismissed the amended suit by investors claiming that Netflix played fast and loose back in 2011 with the financial truths of its shift to a streaming business model. “Plaintiffs do not plead plausible facts indicating that Defendants touted the streaming business’s profitability as opposed to the projected or hoped-for strength of the interrelated DVD and streaming business,” said Judge Samuel Conti on August 20 of the suit whose class action period covered October 2010 to October 2011. The initial complaint was field in January 2012. “None of what Plaintiffs plead therefore shows that Defendants made any false or misleading statements about the profitability of the streaming business,” he added. In a 24-page order (read it here), the US District Judge dismissed the suit against Netflix, CEO Reed Hastings, current CFO David Wells and past CFO Barry McCarthy with prejudice and no leave to amend.
The order this week came after Judge Conti granted Netflix’s motion to dismiss the original complaint back on February 2 of this year. At the time, the judge said that the City of Royal Oak Retirement System and … Read More »
Netflix shares are down about 3.6% this morning as investors digest its better-than-expected Q2 earnings, and slightly disappointing subscriber growth numbers. But CEO Reed Hastings remains sanguine, telling CNBC that with a sub fee of $7.99 a month “our model works great as is.” All of its original shows including Arrested Development are hits, although he won’t offer statistics to say what that means. “We just want to get more and more content,” he says. What’s more: “We should have some failures, or we’re not being adventurous enough.”
“We’re fundamentally in the membership happiness business as opposed to the TV business,” is the way CEO Reed Hastings described his view in Netflix’s first video conference call for analysts. CNBC’s Julia Boorstin and BTIG analyst Rich Greenfield pitched the questions, on a Google Hangout, synthesizing contributions from analysts. And Chief Content Officer Ted Sarandos didn’t flinch when Greenfield specifically asked about movies, news, and talk shows. There’s “no reason” why Netflix wouldn’t expand into those areas, he says. Hastings added that “HBO and Showtime do sports.” The observations build on a statement in the company’s Q2 earnings note released this evening. It says that in addition to conventional TV series such as House Of Cards and Arrested Development “we will be expanding our Originals initiative to include broadly appealing feature documentaries and stand-up comedy specials.” Netflix has become “a big destination” for fans of “much loved and often under-distributed genres” Execs avoided specifics when asked to show precisely how original series benefit the company. “When a new member joins they don’t say ‘It’s because of Arrested Development‘,” Hastings says. Sarandos added, though, that original shows “are performing really well for us” — which the company demonstrates by renewing then. The content chief also stood by its deal with DreamWorks Animation, despite the soft domestic opening box office numbers for Turbo. “The rate card adjusts up and down with the … Read More »
Brian Grazer, whose Imagine TV produces Arrested Development, said his company is in talks with Netflix about doing a fifth season of the former Fox comedy series. It would be the second batch of episodes for the internet-video sub service. Back in May, Netflix CEO Reed Hastings said the company liked the idea of doing another season. “If the talent were willing to do more [episodes], and interested in that, I’m sure we would be willing,” he told CNBC back then, citing the show’s boffo numbers on Netflix, which he declined to share. Now in a major development, one of the producers says they’re talking about doing an additional season. “We are in conversations with them to do another,” Grazer said in an interview today with Bloomberg Television at the Allen & Co. conference in Sun Valley, Idaho. “They are interested in doing that.” Press coverage of this major development has speculated Netflix was no doubt encouraged by strong sampling for the new season it unveiled in May, based on Hastings having said it did extremely well while declining to share numbers.
Investors rarely reject management’s views on such matters, especially at a time when a company’s stock is soaring. Yet despite the 250% increase in Netflix‘s price during the past 12 months, shareholders today resoundingly supported several changes to democratize the way the company is run. A motion to repeal the classified board — where the seven directors serve multiyear terms, and only a few are up for re-election each year — won with 88.4% support. More than 80% said that uncontested board candidates should only be elected if they win a majority of the vote. A similar number want shareholder motions to pass with a majority vote — ending requirements for a supermajority. And 73% want Netflix’s chairman to be an independent director, which would mean that Reed Hastings couldn’t be both CEO and chairman. Read More »
CNBC sat down with Netflix CEO Reed Hastings on the sidelines of the AllThingsD conference in Rancho Palos Verdes, CA this morning. Hastings was of course mum on providing ratings data for its new original series Arrested Development, which premiered this week, saying the company was more interested in how it performed over the course of a year or so but that “it’s been huge, just as we hoped”. The push into original programming is a massive step for Netlfix, Hastings said, saying “this is how HBO started”. He also took a swipe at the Big Media congloms among those hovering around the sale of Hulu, saying he’s more worried about a “hungry” independent buying up the rival streaming service.
UPDATE, 3:10 PM: Clarifying statements from the involved parties have been flooding in since last night’s news about Netflix losing hundreds of movies from its streaming service beginning today. Reports originally said the vacating titles were from Warner Bros, but it turns out the majority were “older features that were aggregated by Epix,” a Netflix spokesman said this afternoon. Epix’s two-year exclusive deal with the streaming service expired in September; content from Epix — owned by Paramount, Lionsgate and MGM — also streams on Amazon Prime Instant Video. A source tells Deadline that that the number of expiring titles is closer to 1,000, rather than the 2,000 figure floating around online. “This ebb and flow happens all the time”, Netflix said. The company also said it is adding 500 more titles starting today, including Mission: Impossible 2. Read More »
The CEO wasn’t even the company’s highest paid exec last year: That honor went to Chief Content Officer Ted Sarandos who made $6.5M, according to the Netflix proxy just filed at the SEC. The big change for Reed Hastings was a drop in the value of his option awards, which were unusually high in 2011. Last year’s package consisted of $509,615 in salary, $5M in option awards, and $966 in other compensation — relatively modest amounts compared to most media moguls. Hastings also owns 4.5% of Netflix shares and benefited from the 29% increase in Netflix’s stock price last year (not to mention the 133% gain so far in 2013). His 2012 compensation is 1.4 times the median for the company’s four other top executives including Sarandos, comfortably below the level (3 times) that worries corporate governance watchdogs. Still, there could be some tension at the annual meeting on June 7 in Los Gatos, Calif. Shareholders will propose several changes that the Netflix board opposes. One would require that all board members be elected annually, instead of to staggered 3-year terms. Proponents say it would enable shareholders to hold directors accountable; the company counters that it would make Netflix vulnerable to “the often short-term focus of special interests” and potential acquirers. NYC Comptroller John Liu — who’s also tangling with Cablevision — wants Netflix to make the Chairman independent of management to avoid conflicts of interest. The board says that … Read More »
While celebrating the “great success” of Netflix‘s House Of Cards, CEO Reed Hastings announced today that the company’s Arrested Development series will likely only run one season. “We don’t anticipate being able to do season five, six and seven”, Hastings said at the Morgan Stanley Technology, Media and Telecommunications Conference, “and we have less of a stake in it. So it’s really a fantastic one-off which is coming together incredibly.” The Netflix chief today lauded upcoming original programs including Eli Roth’s Hemlock Grove and season two of Lilyhammer and teased the company’s long-term strategies. As for Arrested Development, he said, “think of it as a non-repeatable amazing [sic] whereas the other things that we’re doing [are] trying to figure out a real mechanism where we can build shows and develop franchises over the long term”. The show is set to debut 14 new episodes via Netflix in May.