Netflix CEO Calls 'House of Cards' Down Payment on Original Content

DOWN: Reed Hastings

Netflix posts a $5 million quarterly loss -- its first since 2005 -- even as the company's subscriber base grows to 26 million and CEO Hastings' pay jumps 68 percent to $9.3 million for 2011.

Reed Hastings sees the business as a longer-term opportunity and provides an update on the video streaming company's international strategy.

Netflix subscribers don't sign up for original content or specific shows but the overall experience, CEO Reed Hastings told a Morgan Stanley media and technology investor conference Monday. 

"You want to think of House of Cards as a down payment on the potential to build real franchises" over the coming years, he cautioned investors in a session that was webcast. "We don't want you to think that suddenly we are the original-content company."

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But the political drama starring Kevin Spacey is Netflix's most-viewed content offering, and original content looks "very promising over five to 10 years," he said. "It could become quite material." Overall, he urged investors to see the success of original-content investments as "a very nice confirmation of the premise that over years we can build something really important as opposed to some inflection point."

Asked about Netflix's international strategy, he said the firm will take a breather in terms of new market launches in the first half of 2013 but continue to focus on Europe. "We'll be ambitious again going forward," Hastings said without disclosing details. "We are growing internationally. We are going to continue to invest."

He said that in each foreign market the company faces competitors, such as Amazon and BSkyB, that have money to spend. But the executive emphasized that pushing for a strong market position is key. "We have somewhat deep pockets" as well, Hastings said. "If you are the one that has gotten to scale, you have a heck of a franchise. So we are pushing hard at that."

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He cited the example of Disney's ESPN, which earlier in the day had announced the sale of its U.K. TV channels to telecom giant BT. "ESPN just pulled out of the U.K. because of competition," Hastings said, emphasizing that scale is important even for "a company that really knows what it is doing." 

Those who question his decision to spend on subscriber growth now only need to ask themselves how long the Internet will be a dominant distribution platform, the Netflix CEO said, suggesting that this would be the case for "probably a very long time." 

So his firm has an incentive to invest a lot. "If we invest upfront, that's a very long-term defensible franchise," Hastings said. 

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The Netflix boss also answered a question Monday about possible extra charges or usage limits that broadband providers like cable operators could require from heavy online video users, including Netflix subscribers.

"There would be a pretty big outcry if they cut access to Netflix," Hastings said. He said that broadband providers charge $40-$60 a month and pay no content fees, making their broadband business very profitable.


Twitter: @georgszalai