For as long as Netflix has existed, there's been widespread theories and speculation that the subscription-based service is a primary cause of cord cutting. But today, Netflix CEO Reed Hastings made it clear—as he has tried to before—that he's not interested in stealing customers away from cable TV.
"To the degree that we try to be a substitute for cable networks," Hastings said, "[that's when] we get into a cord cutting battle that's not really in our interest. Our view is to be complimentary."
Hastings made the comments during an earnings call Wednesday, when the company announced earnings above Wall Street Q4 expectations, adding 600,000 U.S. subscribers and hitting revenues of $876 million. But here are the real numbers to watch: Netflix lost 2.76 million DVD subscribers, suggesting its traditional disc business is fast declining, whereas its streaming business is steadily growing again. Members consumed over 2 billion hours of streaming content during the quarter, an indication of just how important original and licensed content has become to Netflix's future. Today, Hastings gave some insight into what that digital future might look like.
When asked whether Netflix would bid on current seasons of television content, Hastings said he's less interested in "catch-up TV," and more so interested in offering "complete prior seasons." In other words, don't expect to watch new episodes of Mad Men anytime soon. Hastings insisted he had no interest in getting into a "cord cutting battle" with the cable networks; rather, he wants a larger on-demand offering. "We're comfortable with with that partitioning because our segment is very broad and big at a low price point," he said. "So no, we're not bidding on any current seasons [of TV]."
That thinking will translate into how Netflix delivers original content, such as the $100 million House of Cards series that the company has licensed to much fanfare. Hastings hinted that rather than string out new episodes week after week, as is common practice for traditional television networks, Netflix would essentially offer it all at once. "The Netfix brand for TV shows is really all about binge viewing," he said. "The ability to get hooked and watch episode after episode. Our release strategy ... is to get [you] hooked rather than get strung out."
To measure a program's success, Netflix won't look at pilot ratings (it's already licensed the show for two seasons) or how it's doing up against other traditional television shows (after all, it won't be competing for a particular time slot). Instead, Netflix said it will measure its original content by total views versus total costs; how much it attracts new subscribers; and whether or not it bolsters the Netflix brand.
It's always been assumed that Netflix wants to be more like television—in actuality, Hastings implied today that he expects television to become more like Netflix. Rather than have the most up-to-date content, like traditional television, Netflix is interested in having the largest array of backlogged content; and rather than try to build suspense for a show over a traditional season's length, Netflix indicated it is willing to let its subscribers binge on all episodes at once.
It's a mindset that plays into the larger perspective for where Netflix thinks television is heading. As per the company's letter to shareholders today:
Over the next few years, UIs will evolve in astounding ways, such as allowing viewers to watch eight simultaneous games on ESPN, color coding where the best action is in a given moment or allowing Olympics fans the ability to control their own slow-motion replays. A decade from now, choosing a linear feed from a broadcast grid of 200 channels will seem like using a rotary dial telephone.
Just as broadcast networks have substantially transformed themselves into cable channels over the last twenty years, both broadcast and cable networks will effectively also become Internet networks like Netflix. As a pure-play we have many advantages, however, just as cable did over broadcast. We are 100% on-demand and highly-personalized. Our brand is broad, rather than niche, so we can combine the benefits of multiple channels into one service. Additionally, our Internet culture enables us to create and drive social TV, recommendations TV, and other Internet innovations faster than our cable and broadcast network competitors.
As cable networks developed, they were able to both compete with broadcast networks, and to bolster broadcast networks economics through syndication. Today it is accepted practice for networks to license parts of their content to other networks, if they get paid well enough. That is the world of content licensing in which we live. In that sense, we are just another network competing for viewing time with, and licensing content from, other networks.
ESPN, are you listening?
[Image: Flickr user Gbaku]