Nothing seemed to faze Netflix CEO Reed Hastings and other execs in their conversation with analysts today. HBO’s just-announced plan to offer a stand-alone online service should result in “fun” competition, he says. Movie theaters’ decision to ignore next year’s Crouching Tiger sequel was expected, and could change. Meanwhile Netflix says data show that Adam Sandler is a rarity — an American comedian whose humor appeals to audiences across the globe. As for Netflix’s weaker than expected Q3 subscription results, well, things happens. Here’s the play-by-play:
First question to CEO Reed Hastings about what makes him confident about sub growth. Hastings says “we’re hoping for big numbers” but still “we have to feel our way along quarter by quarter….Internet TV is going to be everything” in a few years.
CFO David Wells says the Q3 sub numbers reflected a lag in the impact of the price increase earlier this year.
Hastings: We’re feeling incredible about international….It’s a great success, that’s why we’re continuing to invest.
Hastings gets the first HBO Go question: He says “on the consumer side it’s one more channel…Consumers subscribe to many of these….We and HBO have completely different content.” But could be significant when bid for content. Chief Content Officer Ted Sarandos agrees.
Hastings says that HBO Nordics OTT service is priced higher than Netflix. “We stayed well ahead.”
Hastings: “We expect to miss pretty frequently” on sub forecasts.
Wells: There were other factors at play with subs in Q3 but they’re minor.
On international content strategies, Hastings notes that France, Germany, Brazil, Norway are unique markets. Sarandos says Netflix offers 15-20% local content, the rest from Hollywood. When first get to a market people are excited about the content they couldn’t get before, e.g. Orange Is The New Black. Also need a choice in languages.
Wells: Netflix saw $400M in international contribution losses in 2012, and that’s now positive.
2015 expansion plans? Hastings says “we’re still sorting that out.” Will have announcements over the next year.
More on international plans. Hastings points to Canada as a success story, others to follow. Takes 3-to-5 years for most markets to become profitable.
Sarandos says Orange Is The New Black and House Of Cards have been successful in Australia, China and elsewhere.
Now Adam Sandler question. Sarandos says Netflix made Sandler deal after seeing data showing that his films defy conventional wisdom that American comedy doesn’t travel. Last movie was 60% international. …He’s a real global superstar.
Now an Adam Sandler question. Sarandos says Netflix made Sandler movie deal after seeing data showing that his films defy conventional wisdom that American comedy doesn’t travel. Last movie was 60% international. …He’s a real global superstar.
Sarandos says movies make sense because Netflix could pay less to produce the film than it would to license it. “To us it’s programming cost, not an individual P&L for each film.” Hastings credits Sarandos for a “creative” deal.
On movie theaters refusing to run Crouching Tiger, Sarandos says there’s “very little [impact] economically…As expected the theater chains reacted negatively publicly.” But that could change by the time the movie’s ready to debut.
Sarandos: $140M a year is being poured into the Canadian economy producing animation for Netflix.
Wells: Netflix spends $3B internationally on content, and that’s growing. …Could pressure free cash flow.
Sarandos: In January Netflix subs will see Better Call Saul.
Hastings on interconnection fees with ISPs: “We don’t ask them to pay for our content, and we don’t think they should ask us to pay for their network.”
Hastings praises Verizon’s interconnection speeds, although still not as high as Europe.
Hastings: On interconnect fees “it’s straight power dynamics as opposed to costs. It’s much friendlier” outside the U.S.
Back to HBO competition. In Nordic countries “they had some teething problems that they wouldn’t have in the U.S….They’ve done pretty well and we’ve done very well.” Will be “a fun couple of years” as they compete. “We’re excited HBO is in the game with the Internet….It’s exciting to see.”
Side note: Comcast is listening…A tweet says “Remember when Reed Hastings said his interconnection deal with Comcast was great for consumers?” Points to page 26 here: http://corporate.comcast.com/images/2014-09-23-REDACTED-Comcast-TWC-Opposition-and-Response-Exhibit-4-McElearney.pdf
And they just wrapped up after 40 minutes. (These things usually go for about an hour.)