Reed Hastings, Netflix

Whether by mail or Internet downloading, movie rentals have a bright future.

After founding Pure Software in 1991 and making a fortune selling the company to Rational Software six years later, Reed Hastings turned his attention to the video rental industry, figuring out how to use the Internet to eliminate late fees and even the minor hassle of driving to the neighborhood video store. Fast-forward to the present, and Hastings' second company, Netflix, boasts 5.2 million subscribers who mostly pay $17.95 a month for DVDs that come and go from their homes via the U.S. Postal Service. Hastings spoke recently with The Hollywood Reporter's Paul Bond about the future of movie rentals.

The Hollywood Reporter:
Will Netflix put an end to the traditional business of bricks-and-mortar movie rental stores?
Reed Hastings: The success of online rental is definitely propping up the total rental
market, which has stayed steady. If not for the growth in online rental, Netflix in particular, video rental would be much smaller today. Netflix competes as much against premium cable networks like Starz and basic cable networks like FX as we do with video stores. It's a very broad market for movies in the home.

THR: Has Netflix influenced the movie business in other ways?
Hastings: Our fundamental contribution is personalized movie merchandising, which
creates demand for small movies that are otherwise hard to market. (It also) creates high consumer satisfaction because the movies are interesting to that particular consumer. For small movies, Netflix can often be the difference between creating a profit and not because we do generate significant demand.

THR: How will the public consume movies 10 years from now?
Hastings: I think television will radically change. We'll move from this era of control -- where cable or satellite gives you 50-500 channels -- to an era of freedom where, from your television, you can get any Internet video from CNN.com, Fox.com, Europeansports.com, Playboy.com, YouTube.com, whatever. This opening-up of the content universe for Internet video is the big opportunity ahead.

THR: Will theaters still be popular?
Hastings: Absolutely. Movie theaters have a very special place as an entertainment destination, and I don't see them going away -- ever.

THR: What happened to your joint efforts with TiVo to deliver movies digitally?
Hastings: There's not enough content available, and we canceled and postponed all our efforts two years ago. We're continuing to do research and development, and we'll talk about our strategy in January.

THR: I'll ask you what I asked Mel Karmazin, CEO of Sirius Satellite Radio: With so many media subscription services, is the consumer nearly tapped out?
Hastings: Consumers like great selection, value and convenience. If new services offer that, consumers have shown they're very willing to use those services.

THR: What are the most disruptive changes headed our way in terms of media distribution?
Hastings: Internet television and the ending of the channelized experience of the last 60 years.

THR: Will Netflix be a player there?
Hastings: Netflix has always focused on the Internet opportunity, and we intend to be a leader in movie delivery on the Internet as this change comes about. Other companies will be the leaders in other forms of entertainment, such as news, sports, serialized content, shorts, etc. Our focus is movies.

THR: How does the battle between HD-DVD and Blu-ray affect Netflix and consumers?
Hastings: We think Microsoft and Sony are both strong enough to create a stalemate, and the solution is for all studios to join Warner (Bros. Pictures) and Paramount as format-agnostic. Then the press will declare the war over, and consumers will start buying. Two formats is not a big problem for the industry -- for the last 10 years, we've supported VHS and DVD just fine.
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