Pay TV providers already “know how to deal with HBO and would like to have a competitor to HBO,” Netflix CEO Reed Hastings said today at the Morgan Stanley Technology, Media, and Telecom Conference. So even though he doesn’t expect Netflix to join the pay TV line-up as a premium channel any time soon, “it’s in the natural direction in the long term” and “might be very powerful, especially as we have more original content.” But Hastings won’t give up the company in return for carriage, the way many cable channels have. Also he says that in any distribution arrangement it’s important that “the consumer knows they’re using Netflix and have our application on the TV.” Meanwhile, he says that cable operators have good reason to like having Netflix on broadband — despite their frequent complaint that the video service is a bandwidth hog. “They’re making a fortune,” he says. “Comcast and others are selling a (broadband) service for $40, $50, $60, $70 a month with no content costs.” READ MORE »
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.”
Big Media 3Q Corporate Earnings Roundup: Are CEOs Really Worried About Recession? Or Just Looking For Convenient Excuse?
Three months ago, when Big Media CEOs wrapped up their 2Q earnings, they were still relentlessly upbeat about the business. Any worries about the economy? Not then. But the messages they delivered over the past few weeks, as they discussed 3Q, were different. Although they’re still optimistic — remember, they’re paid to be salesmen — now and then you could hear expressions of concern about where things are headed. It stood out when Viacom CEO Philippe Dauman noted that “ad sales growth will face some headwinds.” Other CEOs who are known for speaking bluntly warned that other shocks may bedevil the business. For example, Dish Network Chairman Charlie Ergen said that his satellite company — and others in pay TV — have to fight harder against rising programming costs because “there’s a limit to the price increases that could be passed on to consumers.” Time Warner Cable CEO Glenn Britt warned that premium channels such as HBO, Showtime and Starz “are clearly impacted by the economy as consumers try to cut back.” Either they’re genuinely worried, or they want a scapegoat to blame for things that are going bad, or may soon do so. Whatever the case, we can expect to hear a lot more about the economy when it’s time for the post-mortem on the all-important 4Q earnings.
As for industry performance matters, parents of movie studios had their usual mixed results to brag about or explain away: Time Warner benefitted from Harry Potter And The Deathly Hallows Part 2. Viacom was up on Transformers: Dark Of The Moon. And News Corp beat its chest about Rise Of The Planet Of The Apes and X-Men: First Class. But Disney’s Cars 2 was no match for last year’s Toy Story 3. Comcast’s Universal Pictures had nothing to compare to last year’s Despicable Me. Lionsgate suffered from Conan The Barbarian and Warrior. And DreamWorks Animation’s Kung Fu Panda 2 didn’t contribute as much in the quarter as Shrek Forever After did in the same period last year.
Over at the TV networks, Comcast’s NBC underperformed the Street’s already modest expectations. Execs at almost all the companies were eager to talk about the cash they expect to collect soon from political ads — as well as their favorite new ATM machines: retransmission consent deals and digital streamers including Amazon, Hulu, and Netflix. Speaking of Netflix, CEO Reed Hastings once again tried to reassure investors that he’s focused on “building back our reputation and brand strength” after his decision in July to slap a 60% price increase on customers who wanted to continue to rent DVDs and stream videos. In 3Q Netflix lost 57.7% of its market value and 800,000 subscribers. And since that customer loss was bigger than projected, Netflix shares continued to fall — they’re now down 67.3% since July 1.
Here are some other themes from the latest earnings reports:
Ad sales: They’s good, but for how long? Most television networks report that scatter prices are comfortably above the upfront market from this past summer. CBS chief Les Moonves says prices in 4Q are up by “mid-teens” on a percentage basis, while Discovery says it sees least high single digit percentages. But Disney’s Bob Iger noted that scatter prices have “slowed slightly these last few weeks.” Kurt Hall of National CineMedia — the leading seller of ads in movie theaters — was far more direct when he spoke to analysts after ratcheting down his company’s financial forecasts. “I’m sure that the broadcast and cable guys are sitting there now counting their lucky stars they got their upfront done before August,” he told analysts. “There’s a lot of uncertainty.”
UPDATE, 5:30 PM: It looks like the deal Netflix announced this morning to expand into the UK and Ireland will take its toll on the company, which said during its post-earnings conference call with analysts that …
The flip-flops continue at beleaguered Netflix. CEO Reed Hastings says today in a blog post that “It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs. This means no change: one website, one account, one password … in other words, no Qwikster.” He says that Netflix is sticking by its decision in July to raise prices by 60% for subscribers who want to continue to both stream videos and rent DVDs, but adds that ”we are now done with price changes.” The consumer backlash to that new pricing kicked off a three-month period during which Netflix’s market value fell by 60% — about $10B. The company said last month that it expected to report that its 3Q subscriptions would be about 1M lower than it had projected. Hastings hoped to stop the bleeding on Sept. 18: He apologized for the way he announced the price increase and unveiled his plan to give the weakening DVD rental business a new identity. The newly renamed Qwikster would add video game rentals to the mix and have its own CEO, Andy Rendich. “Our view is with this split of the businesses, we will be better at streaming, and we will be better at DVD by mail,” Hastings said at the time. “It is possible we are moving too fast — it is hard to say. But going forward, Qwikster will continue to run the best DVD by mail service ever, throughout the United States.” Lots of consumers, though, found the arrangement confusing, while investors wondered whether Hastings was simply preparing to sell his DVD rental business.
Wall Street was reassured by today’s announcement, which comes just as some analysts say that Netflix’s share price is low enough to consider buying again. The stock is up more than 7% in early trading. Just prior to Netflix’s announcement one of its toughest critics, Janney Capital Markets analyst Tony Wible, upgraded his recommendation to “neutral” from “sell.” He says that “Management is under immense pressure to revive interest in the stock and will likely use 3Q11 earnings to rebuild confidence any way they can, especially if they are looking to sell the company.” Netflix will report its 3Q earnings on Oct. 24. Goldman Sachs’ Ingrid Chung says that while “today’s retreat from separating the websites shows how little testing had gone into the launch of Qwikster, we believe that the more humbled management team will be more thoughtful going forward.” Lazard Capital Markets’ Barton Crockett calls the decision to drop Qwikster “clearly, a good idea” but adds that it isn’t enough to make up for the declining popularity of DVDs, and Netflix’s price hike. He adds that the company’s “very visible waffling also likely dinged domestic momentum near-term.”
Here’s today’s release about the end of Qwikster:
Facebook’s latest revamp has big implications for entertainment. At the company’s developer conference f8 today, CEO Mark Zuckerberg revealed the broader purpose of the site’s recently unveiled “ticker” feature as well as a new one called Timeline, and announced a slew of content deals that will allow users to latch on to the TV shows, movies and music that their friends are enjoying. The “open graph” media apps — which will include Hulu, Netflix, Spotify and IMDb – will allow users to launch a window from the ticker or Timeline to watch TV and movie content, or listen to songs their friends have just listened to. However, as Netflix can’t seem to catch a break lately, there are complications: The company’s embattled CEO, Reed Hastings, also took the stage at f8 to talk about the Netflix integration and pointed out that current U.S. law prevents Netflix users from connecting the service to their Facebook account. Users in all the company’s other territories have the go-ahead, though. The Netflix blog posted a plea for its U.S. customers to ask Congress to reverse a law that “creates some confusion over our ability to let U.S. members automatically share the television shows and movies they watch with their friends on Facebook.”
Are you a big-name executive capable of cultivating relationships and striking deals with the film and music industries? If you are, Facebook wants you, according to a report from Reuters. The social media titan wants to make media a major …
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?
Netflix CEO Reed Hastings apologized to customers late today and announced that Netflix will split its DVD and streaming video businesses and rebrand the DVD division. “In hindsight, I slid into arrogance based upon past success,” Hastings admitted in a blog post. He had to do something to win back his customers and stem his stock slide. Netflix has been under fire since it instituted a 60% price hike for its DVD and streaming video services. The change sparked a social media revolt and dropped its stock by nearly 50%. The company suffered another setback earlier this month, when Starz announced it would not be renewing its deal, which will mean Disney and Sony pictures won’t be available in 2012. “Now I see that given the huge changes we have been recently making, I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both,” Hastings added.