NEW YORK (Reuters) - Time Warner Inc Chief Executive Jeffrey Bewkes questioned whether Netflix Inc’s current business model of paying top dollar for rights to stream movies and TV shows over the Internet is sustainable in the long-term.
Bewkes said for a subscription service to work it would have to pay premiums for the best content soon after it is released in theaters or broadcast on television or risk devaluing the programing.
“It’s hard to see how that kind of economics can fit into a service that charges $8 or $10 a month because the math doesn’t work,” he said at the Reuters Global Media Summit on Wednesday.
Founded in 1997 as a DVD rental-by-mail service, Netflix has surged in popularity after it began offering movies and TV programs over the Web in 2007.
Bewkes also said he sees the fast-growing Netflix as a direct competitor HBO, to his company’s premium priced pay-TV network.
Netflix declined to comment on Bewkes’ remarks.
Bewkes also cast doubt on Netflix’s long-term sustainability given the postal costs involved in Netflix’s traditional business of sending rental DVDs through the mail to customers.
“The problem that they got if you start going through sustainability questions is not so different from Blockbuster.”
Blockbuster went into bankruptcy earlier this year after struggling with debt and operating costs involved in maintaining retail outlets.
Netflix, which now has more than 16 million subscribers, has itself made clear it wants to reduce the size of its DVDs-by mail business to focus on its online service.
Last month Chief Executive Reed Hastings announced plans for an unlimited streaming subscription for $7.99 a month while raising the price of some of its other streaming plus DVD rental plans.
Netflix’s big push into streaming has raised concerns on Wall Street it will disrupt the healthy cable business as consumers turn to its cheaper entertainment service.
U.S. pay television subscriptions have fallen for two straight quarters — the first ever occurrence. Time Warner reported HBO will lose 1.5 million subscribers this year as distributors dialed back on promoting the channel responsible for “True Blood” and “Boardwalk Empire.”
Bewkes said rival premium pay-TV channels like Epix and Liberty Media’s Starz had made an error in licensing their shows to Netflix.
Epix, which is jointly owned by Viacom’s Paramount, Lions Gate and MGM studios, signed a five-year $950 million deal with Netflix in August.
“(It) is basically fairly unimpressive programing at a very high cost,” said Bewkes of the Epix deal.
Starz is expected to negotiate a new deal next year with Netflix at a higher price than its previous agreement, analysts have said.
“I think they can come up with something that will be sustainable in the long run,” he said.
But in Netflix’s current state, securing expensive programing while charging subscribers little is business that “doesn’t support that kind of weight.”
Reporting by Jennifer Saba and Yinka Adegoke, additional reporting by Sue Zeidler; Editing by Paul Thomasch