Netflix CEO Reed Hastings knows that the business of renting movies through the mail is not long for this world. He's not sure how long that will be, perhaps 20 years, but he's not worried.
Mr. Hastings in an interview with The Wall Street Journal talked about how Netflix, the online video rental service that delivers titles through the mail to consumers, has defied naysayers up to this point and how it plans to continue doing just that.
The company currently has 6.3 million members on its monthly plans; that's a 51 percent increase over 2005. Revenues were up 46 percent during the most recent fiscal year and Netflix continues to stare down the likes of Wal-Mart, Blockbuster and Amazon.com.
Mr. Hastings said those that doubt the long-term prospects of a DVD rental service using the mail are smart to do so. He said "there's a known obsolescence" and the service will be eventually be replaced by another form of delivery. "We can argue about whether that's 10 years or 25 years [away]. Some people probably think it's five. I think they're wrong. It's probably more like 20," he said.
Online downloads are one of the delivery methods Netflix is exploring along with its growing list of competitors, including Apple's iTunes service.
"We're taking it (online downloads) pretty aggressively. We're investing about $40 million into it this year," he said. "We feel that that's the appropriate size investment, given the size of the market. If you over-invest in a market, of course, a lot of the money is wasted... We'll be up to 5,000 films by the end of the year, open to all of our subscribers."
Netflix expects to see continued strong growth in its subscriber base despite initiatives such as Blockbuster's Total Access service, which gives members the option of returning films to stores in addition to going the mail route.
"We're forecasting around two million this year in net additions [of subscribers]. They're forecasting around two million net additions. The amazing thing is that that's four million net additions total, that the market is growing that fast. While we're competing hard and that can be challenging, it's absolutely having the effect of growing the market faster than either one of us could have grown it on our own."
Ultimately, said Mr. Hastings, Netflix is looking to connect with consumers through every channel possible. "Our view is we should get to every internet-connected screen over the next two years, as we also grow the title selection. That includes cell phones, laptops, where of course we are today, and television."
While Netflix has worked on many prototypes for delivering content, according to Mr. Hastings, the company is not ready to publicly comment on those it intends to pursue.
Discussion questions: How would you assess the current state of the retail movie rental and sales business? Where do you see the business heading in the future?