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Reed Hastings: No Plans To Crunch U.S. Data Usage

Reed Hastings
Bloomberg/Getty Images
Reed Hastings

Netflix topper says U.S. video streaming giant slashed its Canadian data usage to avoid overage fees for its Netflix Canada subscribers.

TORONTO – Reed Hastings insists he hasn’t felt the heat of Canada’s Netflix debate. So don’t assume the Netflix CEO backed down in his fight with major Canadian Internet service providers (ISPs) over usage-based billing when Netflix Canada on Tuesday chose to crunch the data usage of its newly launched Canadian video streaming service.

The concern lay with Canadian Internet users under threat of data overage fees, leading Netflix to reduce its default levels for picture and sound quality, and also the bandwith usage of its current and potential Netflix Canada subscribers.

"It’s uncomfortable for Canadians to get a data overage charge, and most people want to avoid that. So we took this step to help avoid data overage charges," Hastings said Tuesday in Toronto.

He adds that Netflix has no plans to introduce less intensive data streams in the U.S. market because data caps are far higher south of the border.

"The caps in the U.S., where they exist, are very generous – Comcast offers 250 gigabytes for $40 a month," Hastings observed.

And Netflix is betting that, over time, Canadian ISPs will raise their download caps and Canada’s hot-button Internet debate -- whether online surfers can continue to consume unlimited data for a flat fee or, like electricity and food, should start paying for what they consume – will subside. 

That can’t come too soon. Subscriber growth for Netflix Canada since launching in September 2010 has been strong. Hastings said Netflix Canada expects to get to 800,000 subscribers this quarter, and by summer will have signed up 1 million customers and break even financially – all in under one year.

But there’s a nagging question: Could Netflix Canada’s subscriber base be even higher at this point if major ISPs hadn’t scared potential customers off with threats of overage fees or forcing third-party ISPs to scrap unlimited data plans?

"It could be. It’s hard to tell. I think if you were on a 15-gigabyte plan in our old model, you would certainly have gotten data usage charges," Hasting said. "Now that 30 hours (of Netflix consumption) is nine gigabytes, you’re pretty comfortable, depending on how much you use Netflix."

And much as Hastings insists he’s not using his Canadian subscribers as a test case to show Netflix can slip into a new market without upsetting the apple cart, his current Canadian pressures are much the same as those he faces from incumbent players in the U.S. market.

"In the States, many of the cable and satellite companies have been concerned about cord-cutting, and was Netflix generating cord-cutting," he said. "But you can see we've grown from no streaming when we signed the (2008) Starz deal to 20 million subscribers in the U.S., and there’s been virtually no cord-cutting."

But now that Netflix has established a streaming market, it’s getting more difficult, and expensive, to negotiate and renegotiate content deals.

"We’re continuing in discussions with Miramax," Hastings said when asked about reports of a near-$100 million streaming deal with that studio in the works.

That said, he added that Netflix is talking to every other Hollywood player, all the time. Well, almost. HBO remains an elusive partner.

"We keep trying to be in discussions. But at this point, it's cordial, but there’s not a lot going on."

Recent tightening of programming windows by Starz and Showtime isn’t helping either. Hastings insists Netflix wasn’t driven into original programming, as with the recent deal for the House of Cards series, by U.S. pay TV operators delaying streaming of movies and series.

"We were in the mix for House of Cards before all that. But, indirectly, yes, we felt we should try a little original content on our own. It’s a test and an experiment," he said.

But before David Fincher, who is to direct the House of Cards remake for Netflix, takes fright at the word "experiment" bandied about his project, Hastings adds a caveat: The test will be on how Netflix audiences embrace original series from the video streaming giant. So Netflix isn’t looking to be more like HBO anytime soon.

"We don’t know how many House of Cards-like deals we will do. The experiment is more seeing how it will work for us," Hastings said.

Meantime, Netflix will be busy bidding for content deals when they come up for grabs. Much depends on timing. Netflix last week unveiled a Canadian distribution deal with Paramount Pictures that gives it access to more than 350 titles in the studio's library for Netflix Canada after that content came up for auction.

"As the deals come up for grabs in the U.S., we’ll be a bidder," he added.

Netflix’s Starz deal is coming up for renewal in just under a year, and Hastings knows he’ll have to go far higher than the $30 million for the 2008 pact. That said, $30 million was pricey then.

"At the time we did the Starz deal, no one was streaming and we had just started streaming. So we almost walked away from the deal because it was so expensive," Hastings said.

Of course, online video streaming has since taken off. Now risk and judgment for Netflix is about weighing the size of a potential audience for content it acquires or renews. And as Hastings continued his Canadian rounds this week, he reminded everyone that break-even at 1 million subscribers for Netflix Canada means a $100 million run-rate for annual revenue, and therefore deeper pockets for Canadian programming rights.

"So we’ll be spending more on Canadian content," he said, ever dangling that carrot to wary local players.