In 2010, Netflix spent roughly $550 million on postage fees, a sum that has declined significantly from years past and could drop even lower in 2011. Thanks to ramped up streaming efforts, the number of DVDs Netflix is mailing out to subscribers is beginning to slow, says Steve Swasey, VP of corporate communications. That's good news for the Los Gatos, CA-based company, which pays about "$1 roundtrip" per DVD, according to Swasey, and significantly less to deliver that content online.
But such success in the digital market has also increased competition from the likes of Amazon, HBO, and Hulu—not that Netflix feels any of these companies have become direct competitors yet.
"There will be [competition] at some point—Netflix won't run without pure competition for long," Swasey says. "Right now, there are three models, and Netflix is running uniquely with the subscription model."
The other two models, he explains, are the pay-per-view model, which is "the Amazons and Apples and Blockbusters," and freemium, ad-supported model, such as Hulu—not Hulu Plus—and YouTube.
Swasey wouldn't comment on Amazon's reported entry into the subscription market, beyond saying the service is "still speculative." Asked about Hulu Plus, Swasey described the service as a bit of a wild card, which the company is still trying to figure out.
"We haven't seen anyone replicate the subscription model yet," he says. "Even Hulu Plus has ads in it still—it's still supported by advertisments, and that's not a pure subscription model."
But Hulu is positioning itself as a direct competitor, locking in deals for new television content that Netflix does not have access to. Would Netflix consider ads if it would mean generating more money for content? The subject "has been broached," says Swasey, but "every time we shoot it down." What's more, Netflix is not trying to market itself as a home for brand new content. "We're not so optimized for new and fresh, as much as we are for complete," Swasey says. "We like to have complete seasons of the series rather than day-after broadcast."
I also asked Swasey about HBO Go, the new streaming service from HBO. Once that service launches, many have speculated that deals with Time Warner, HBO's parent company, would become difficult to ink. Time Warner CEO Jeffrey Bewkes has been especially harsh on Netflix in recent months.
"Netflix is a new money provider—this is new money in the system, which is good for content owners," Swasey retorts, ticking off the benefits of deals with Epix and Relativity Media. "HBO Go is no new money to HBO."
"I think the thing with Mr. Bewkes and Time Warner is that this is an evolving ecosystem, and Netflix is visible in that ecosystem," Swasey says. "Sometimes you can be the target of somebody's concern—we'll leave it at that because we've definitely been a target of his concern."
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