March 16, 2009 / 6:27 PM / 11 years ago

INTERVIEW-Netflix CEO eyes int'l markets amid record growth

* Netflix still interested in international markets

* Redbox seen as chief rival as Blockbuster weakens

* Set to report second quarter of record subscriber growth

By Gina Keating

LOS ANGELES, March 16 (Reuters) - Netflix (NFLX.O) Chief Executive Reed Hastings is looking at ways to double his subscriber base and expand overseas amid the worst economic climate in decades — one that is propelling his online movie rental company to its second consecutive quarter of record subscriber growth.

In an interview on Friday afternoon, Hastings told Reuters that the company’s arrival five weeks ago at the benchmark of 10 million subscribers was “startling because we all have so many friends who are ... laid off and businesses are down.”

The company, which charges monthly fees for various DVD rental packages, expects to report a record number of net subscriber additions for the quarter ending this month due to rapid growth of its online streaming service as well as consumers’ search for entertainment bargains.

“We are fortunate that in a recession we have rotated into favor,” Hastings said.

Despite some analysts’ forecasts that Netflix may not fare so well as the recession deepens in the second half of the year, Hastings may be in a position to dream big.

This year, the company will have operating income of about $150 million, “substantial” free cash flow and no debt, he said, and it has about $250 million of cash.

“I don’t think there is anything we need other than to continue to execute very well,” he said.

As a result, Netflix is revisiting goals that it put on hold when Blockbuster Inc BBI.N entered the online rental market in 2005 with an aggressive push to knock out its smaller rival.

A GLOBAL COMPANY

Hastings and Netflix executives “fantasize” about expanding the streaming service internationally in a twist on the 2004 British expansion plan it abandoned to fend off Blockbuster at home. “Most Internet companies are global companies,” Hastings said, “and when you think about that kind of big opportunities for us, you’d have to say, ‘Jeez, isn’t there a big opportunity in China, Brazil, India, Europe?’

“We don’t have any specific plans, but over the next several years, it’s definitely something we want to look at.”

Hastings also hinted at resurrecting the company’s 2006 goal of reaching 20 million subscribers by 2012, which Netflix later retreated from as the battle with Blockbuster deepened.

“That’s a bit aggressive, but it’s theoretically possible,” he said in the interview.

But while competition from debt-plagued Blockbuster eases, Hastings sees a tough competitor in Redbox, which offers $1 DVD rentals through self-service kiosks in chains like McDonald’s (MCD.N), Wal-Mart (WMT.N) and Walgreens WAG.N. The fast-growing company expects to have 20,000 locations by year’s end.

“When we ask our customers who are leaving what they are going to do for movies, Redbox is coming up more and more,” Hastings said. “For the next couple of years they may be our largest competitor. Of course, they are not going to get into streaming so our competition will only be on the DVD side.”

Despite dour forecasts for DVD sales and predictions by Walt Disney Co (DIS.N) Chief Executive Bob Iger and other media industry executives of a fundamental shift in consumer buying patterns, Hastings sees the Blu-Ray format fueling “at least five years” of growth in DVD rental.

“For us it’s just growing like weeds,” he said. “Nearly 10 percent of our subscribers are paying for Blu-Ray. Even in the last three months, it’s continued to grow very rapidly.”

The growth of the streaming service to 20 percent of Netflix’s subscriber base, many of them PC and game console users, is bringing costs with it.

“We are paying the studios a lot more and the post office a little less, but that’s this early phase where we are supporting both services,” Hastings said.

But those larger payments have yet to translate into content deals that give Netflix access to new movie releases, a competitive advantage Hastings doesn’t expect for a decade or more.

“That has not moved at all,” he said. “(It will take) a lot more money — we’ve just got to keep growing and keep asking, and we’ll see what comes about.”

(Editing by Lisa Von Ahn)

((gina.keating@thomsonreuters.com; +1 626 252 5934)) Keywords: NETFLIX/

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