Netflix sees DVD-by-mail peak in as soon as 5 years

SAN FRANCISCO Wed May 28, 2008 12:51pm EDT

Reed Hastings, CEO of Netflix Inc., a online DVD-rental service, holds several DVD's as he poses at the Netflix offices in Beverly Hills, California December 8, 2005. Hastings, chief executive of Netflix Inc, said he expects the company to hit 10 million subscribers by next year, but that the DVD by-mail business will peak in the next five years. REUTERS/Fred Prouser

Reed Hastings, CEO of Netflix Inc., a online DVD-rental service, holds several DVD's as he poses at the Netflix offices in Beverly Hills, California December 8, 2005. Hastings, chief executive of Netflix Inc, said he expects the company to hit 10 million subscribers by next year, but that the DVD by-mail business will peak in the next five years.

Credit: Reuters/Fred Prouser

SAN FRANCISCO (Reuters) - Reed Hastings, chief executive of Netflix Inc, said he expects the company to have 10 million subscribers by next year, but the DVD-by-mail business will peak in as soon as five years.

"We think the by-mail business is very strong but will probably peak in the next five years," said Hastings at the Netflix Investor Day in San Francisco on Wednesday. A slide at the presentation showed the peak in five to 10 years.

"Our key challenge is growing earnings per share and subscribers while funding streaming (online video) which should give us years of subscriber and earnings expansion," he told analysts.

Hastings told investors that the company's online investment in 2008 and 2009 is expected to be "fairly inefficient," but noted the reason for higher spending was to cultivate better partnerships and content.

He cited as risks the growing popularity of stand-alone DVD rental kiosks, improving video-on-demand services from cable and satellite companies and more competition in streaming from Web giants like Amazon.com Inc and Apple Inc and the potential of renewed promotional spending by Blockbuster Inc in the by-mail sector.

But Hastings and other company executives were bullish on the company's long-term position given its successful expansion into the streaming DVD market.

"Once we're in streaming ... we can attract well beyond 20 million subscribers worldwide," he said.

(Reporting by Sue Zeidler, editing by Jeffrey Benkoe, Phil Berlowitz)