Interview: Netflix
>> netflix, one of the day’s worst performers on friday, shares of netflix down 41% in one friday session after the company lowered prices for its video rental service. netflix sends videotapes and d.v.d.’s to consumers through the mail. consumers then play a monthly fee. but the market is changing and analysts say netflix has its work cut out for it. amazon.com is launching a web-based service and blockbuster wants to expand its presence in that area, as well. suzy assaad spoke with netflix chief executive reed hastings and asked him if may can hold up against all that competition.
>> this market has grown so much faster than anyone could have expected. as you mentioned, this quarter we were $142 million in revenue, up 100% from a year ago. and a market that’s, you know, at a nearly 600 million run rate growing 100% year over year, attracts large competitors. we had been competing with wal-mart the last two years, blockbuster entered a few months ago, amazon will enter. all of this because it’s going to be a very large market . we think this market may actually be larger than the $2 billion online book market .
>> but is this, now, the biggest threat you have faced, bigger than blockbuster and bigger than wal-mart to have amazon come in? in? the changes you’ve announced seem to be substantial.
>> indeed. amazon is a bigger threat than blockbuster or wal-mart. and we’re a bigger company than we used to be. we’re glad that wal-mart and amazon didn’t enter, you know, four or five years ago. now we’re 500 million in sales, we’re over two million subscribers, shipping over three million movies per week and we have momentum so we look forward to this very large market .
>> in terms of your internal numbers, if amazon indeed is going to come into the market , what have you budgeted that you may lose in terms of market share if they do?
>> what we’re looking at is the market expanding substantially. there’s about $8 billion of video rental revenue from video stores and with these low prices, i think we’ll see a a mass conversion of people from video stores moving online and then the market will expand, really extraordinarily fast.
>> i have to tell you, though, several analysts disagree. they think that basically you are a market leader in what one has called a shrinking business that suffers from priceing pressure, low customer loyalty and increasing competition.
>> it’s hard to call it shrinking when revenues are up 96% on a year-over-year basis. the reason blockbuster and amazon are getting into it is because they see it as a growing business.
>> a growing business or possibly you’ve hit on something and they want to take that away from you for whatever is the pool of people using the service.
>> you know, that’s the great thing about competition is they’re entering, we’re lowering prices and the consumers are getting an incredible deal now, $18 a month, unlimited d.v.d. rentals from netflix. this is the american way.
>> would you ever think, have you considered taking on amazon with a partner? would you consider joining a merger?
>> that’s not something i’ll speculate on.
>> have you had discussions with your board about something like that?
>> no comment.
>> in the meantime, though, you have, as we mentioned, taken on and made drastic changes. how much do you anticipate your subscription rate will be for next year?
>> we’re 2.2 million subscriber s. at the end of 2005, we believe we’ll about over four million subscribers, nearly double what we are today because of more people coming online to get the great values.
>> that was our suzy assaad speaking with netflix chief executive reed hastings. delta air lines says its finances took a turn for the worst. delta’s third-quarter losses widened due to record high fuel costs and low fares. the nation’s third largest carrier expects to lose as much as $675 million. cash reserves also fell. an analyst says delta is under more pressure to work out a deal with pilots to stay out of bankruptcy, looking to cut their pay and benefits by a billion dollars. the company is also trying to get concessions from creditors in a reorganization plan. delta shares finished friday down 19%. while delta tries to work something out with its pilots, u.s. airways gets the green light to cut employee pay by 21% and suspend union contracts four months. a judge in virginia signed off on that today. u.s. airways filed for bankruptcy for the second time in two years back in september. the nation’s seventh largest airline wants to reorganize and compete with discount carriers like southwest. u.s. airways needs to cut labor costs by $950 million a year, otherwise lawyers say its assets could be liquidated. still to come, sprint says less and more. the long distance phone company is cutting jobs. details on that story and market reaction straight ahead. plus, the corporate earnings picture. so far, it’s been a mixed bag for the third quarter. we’ll take a closer look at the winners and losers so far.
