Netflix CEO Reed Hastings talks strategy

The streaming media company's chief brushed off the decline in the stock price and said he's pleased with a 'tremendous quarter.'

By MSN Money Partner Jul 23, 2013 12:36PM

CNBCFile photo of Reed Hastings, president and chief executive officer of Netflix Inc., on July 11, 2013 (© Daniel Acker/Bloomberg via Getty Images)By Julia Boorstin

 

Reed Hastings isn't too concerned about the mixed picture in Netflix's (NFLX) earnings report.

 

Five days after Netflix made history by becoming the first streaming service to get Emmy nominations for original content, the company reported earnings of 49 cents per share, beating Wall Street expectations by 9 cents. But subscriber numbers, which came in right in the middle of projections, and the company's third quarter outlook disappointed investors, sending the stock lower after-hours.

 

I sat down with Hastings after moderating a new version of an earnings call: a Google (GOOG) Plus Hangout with emailed questions from a range of investors and sell-side analysts. The Netflix CEO brushed off the after-hours decline in the stock and said he's pleased with a "tremendous quarter."

 

"There's always ups and downs in the short term in the stock price," he said. "But the big picture is great. A year ago, we were at $80. Now we're at $250. Five years ago we were at $30, so we're feeling great about the long term."

 

The fact that Netflix didn't hit the top end of its subscriber growth projections was a point of concern for investors. But Hastings says that was by design; The company tries to forecast to hit right in the middle. Hastings pointed out that the company had more net additions than a year ago. Though the company wouldn't reveal the quantifiable impact of its originals, Hastings says "the day that 'Arrested Development' was released we saw more growth than we expected."

 

One big question for Netflix as it attracts subscribers is how it plans to cover its off-balance-sheet content costs. Hastings acknowledged those costs are significant.

 

"Well you're spending over $2 billion a year on content now, around the world. I mean, it's a really big number. And it's continuing to grow as we're able to get more and more content," he said. "How we pay it off, is we have nearly 38 million members, paying about $8 per month. And that's enough money to pay for all that content."

 

The spending hit pay dirt on Thursday, when Netflix received 14 Primetime Emmy nominations for its three original shows -- "House of Cards," "Arrested Development" and "Hemlock Grove."

 

Hastings says there's no need for the company to raise prices. At it's current fee, it's expanding its U.S. subscriber base slightly faster than last year and "International is growing hugely," he said. Meantime, he added, the company plans to maintain its DVD business, with no plans to shut it down. "We've got over 7 million members who love the DVD business," Hastings said. "It's got every movie, every TV show ever on DVD. And that's something that no streaming service can offer."

 

Netflix faces more competition, as Hulu's parents, including NBC Universal, pour $750 million in cash into the service and Amazon (AMZN) scales to near $1 billion in annual spending. But Hastings insisted he's not worried about either threatening his subscriber base.

 

"We have different content than they do," he said. "I think what'll happen is that they'll do great work and we'll do great work. Think of the political drama category. Of course we have 'House of Cards,' a fantastic show, but Hulu has an original show called 'Battleground' -- which is quite interesting and good. Amazon is funding one -- 'Alpha House' with John Goodman that looks quite promising. So I think more shows is better. And they don't steal from each other -- they build on each other."

 

And Hastings says he sees this peaceful co-existence continuing for some time. "We compete very successfully because we have content that they don't have. And they have content, frankly, that we don't have. And so they're really just like two different channels, ABC, and CBS. I mean they compete a little bit for viewing and time, but it's not direct competition. People will watch shows from both us and Hulu and Amazon. And by the way -- the one with the most content is cable and satellite. And they're continuing to get watched."

 

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