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Netflix, Inc. (NFLX)
December 06, 2011 3:30 pm ET
Reed Hastings - Founder, Chairman, Chief Executive Officer, President and Member of Stock Option Committee
Previous Statements by NFLX
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Well, and this would be your first time at the UBS Media and Communications Conference and we're honored to have you here and on the hot seat, so to speak. Last year, you were the talk of the conference, frankly, and I think there was a combination of mystique and envy and fear, and undoubtedly, obviously, you've been through -- so you've had a difficult few months obviously, and we'll get into that, but obviously, you continue to be a leader in the video -- online video space and we'll talk about that as well. So just to get right down into it, we'll go into the Netflix recent trends and obviously, some recent choppiness that you've dealt with after we talk a little bit about the industry.
So in your opinion why do consumers use Internet video when they already have hundreds of channels on pay TV and some other multi-channel obviously, video program and distribution devices?
I would say the heart of it is click-and-watch. It's the same thing that drove the DVR for a little while is that sense of control, and what really drives Internet video is click-and-watch, probably second biggest is the personalization that you can do on the web. So it's high relevance for each person in terms of the content selection, those will be the big factors.
So outside of Netflix what other video applications online are you impressed by?
Which of the competitors do I -- well HBO GO, I would say is probably the biggest one. It's really quite impressive on our Roku device on an iPad, Watch ESPN, ABC.com, those would be the big ones.
Well, how about the broadband season, the infrastructure to support Netflix and other devices. I think it's talked about -- Netflix is about 25% to 30% of prime time viewing, is the broadband infrastructure there to support that kind of product as it grows, especially and do you foresee it like a pay-per-bit type of the model, similar to price per gasoline, things like that?
Let's see, in fiber optics everybody knows Moore's law about semiconductor density, but what the businesses have been able to do in fiber optics is even more amazing and so basically, more and more bandwidth can go through a single fiber optic than ever in the past and it's just continuing to increase. As an example the peak Netflix's viewing on a Saturday night on a global basis can still fit inside a single fiber optic. And so fiber optic is just unbelievable, and what we're going to see around the globe is like rural electrification, we're going to see fiber to every home and neighborhood in business and school, and over the next 20 years, you're going to see just fiber everywhere. If you look at what Brazil is doing, if you look at what Phillies [ph] is doing, if you look at what Australia is doing in buying the copper-based telco, Telstra, and replacing it with fiber, it's absolutely incredible what's happening around the world, developed economy, emerging economy. Pay-per-bit may emerge. That would be unfortunate because it's not based on the costs. So the costs are high-fixed cost to roll out fiber, and then there’s some peak speed cost to be able to supply the routers all around the peak speed. But essentially, if you download or stream off-peak, there are 0 marginal costs to anyone in the system, and so it's a 100% about peak loading, and so pay-per-bit would be a really bad inefficient cost model to put on top of something that has peak costing as its big driver, and off-peak, the Internet is free.
Well, are you seeing that trend emerge now with the user space pricing or do you think it's further out?
And Time Warner tried it a couple of years ago in Texas and backed down. It exists in Canada but the caps are coming, it exists in Australia but the caps are coming up, and so I don't think so. It's possible there'll be some systems that try to get in a pay-per-gigabyte model. Obviously, on cellular bandwidth is highly constrained and there are lots of cell systems are kept at 2 gigs and a charge above that, but in terms of wired bandwidth where you get these incredible fiber optic delivered efficiencies, I doubt it'll happen, but if it does the market becomes a little more like Canada for us and Canada is growing great for Netflix.
Okay, how and about when you think about the television set, it's clearly been similar for the last few years, but now we're on the verge of trying a lot of innovation on the television set. What do you think that will be in the next 5 to 10 years?