7 Questions for Netflix CEO Reed Hastings

Netflix (Nasdaq: NFLX  ) is rolling these days. It delivered market-thumping quarterly results last week. This week, it earned a Citigroup analyst upgrade, despite the stock trading higher than it did when the analyst had reiterated a hold rating based on valuation concerns just three days earlier.

In short, Netflix is rocking and subscribers are rolling in.

Mac Greer and I spoke to CEO Reed Hastings after Thursday night's earnings conference call. Let's dig into some of the meatier morsels.

If Comcast is Comcastic, then Netflix is Netflixic
Rick Munarriz: I wrote an article entitled "Is Comcast the New Netflix?" -- detailing what the company is aspiring to do with its Fancast.com site (which essentially offers on-demand streaming for Comcast (Nasdaq: CMCSA  ) subscribers of the content they subscribe to, at no additional cost). So is Comcast the new Netflix?

Reed Hastings: No, they are not one of the world's leading DVD rental companies. Presumably that would be just for Comcast customers, so that is one part of the world. It is not the only part that provides lots of market opportunity for us in terms of either those Comcast subscribers who really value DVD rentals or where we have a unique differentiator to all of those subscribers that are on satellite or other systems that don't have access to that Comcast.

Mac Greer: In looking at the competition, I want to get your thoughts on what you see as the two strongest competitive hurdles for Netflix when it comes to video on demand. Is it library size between you versus the competitors? Is it the convenience factor, since cable operators -- like Time Warner Cable (NYSE: TWC  ) and Cablevision (NYSE: CVC  ) -- are already there for the consumer? Is it the network pipe owner? The controller of bandwidth delivery direct to the consumer or is it something else? What are the two biggest competitive hurdles?

Hastings: Well, we are continuing to try to improve the experience for our Netflix streaming, so we need to expend more and more money with the studios to get more content. So that is the biggest barrier is spending more money with the studios. Second might be efficient streaming through the Internet so that all of the data gets to the consumers without any hiccups.

Home, tweet home page
Greer: I want to hit you with a few questions from our Motley Fool Twitter feed. The first question: With so many shows on DVD, why doesn't Netflix directly market the "dump your cable and save money" message?

Hastings: Well, no one dumps their cable. They expand to get the larger cable broadband package. Cable is the best provider of broadband out there, so it is not a realistic message.

Greer: Another question from our Twitter feed: Do you ever see Netflix moving to an ad-based model for streaming video to compete with services like Hulu -- the joint venture between News Corp.'s (NYSE: NWS  ) Fox and General Electric's (NYSE: GE  ) NBC?

Hastings: No. We see that there is a big market in advertising-based video that Hulu and Google's (Nasdaq: GOOG  ) YouTube and others will be very competitive in and we are going to focus on commercial-free subscription, which is not the largest segment, but it is a big enough segment for us to grow in for many years.

All-weather stock?
Greer: To what extent do you think a recession has benefited Netflix relative to the competition?

Hastings: It is hard to tell if it has. People want to draw a connection between our growth as being fueled by the recession, but we were growing when times were good. So if you look since we went public in 2002, we have had major boom times and some tough times and in both of those Netflix has continued to grow. So I don't think our growth is very connected to the recession.

Munarriz: One of our analysts -- Anders Bylund -- alerted me to the fact that Netflix had stopped accepting any new orders for in-mailer advertising. Really?

Hastings: True. It was pretty inconsequential and we just decided to use the inventory to promote our new initiatives like our streaming to Xbox and LG and Samsung and Roku.

Munarriz: Did Netflix ever get sponsor requests for bundled mailers, like a shampoo sample or a trial software disc? What is the most outlandish request that you have ever gotten from a company that wanted to market on the Netflix mailers that you guys passed on?

Hastings: I don't remember any that were really outlandish. It was pretty straightforward. It is a great demographic. Now we have chosen to again be focused on our consumer electronic partners and to provide the inventory to them because the more that our consumers get Blu-ray, get Xboxes, get Rokus, the better situation we are in.

With 10.3 million subscribers -- and counting -- it's hard to bet against his judgment.

Want to hear some other perspectives on Netflix? Check out last week's Motley Fool Money podcast. New podcasts get published after the market close every Friday. Download it at motleyfoolmoney.com or subscribe via iTunes.

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Netflix is a Motley Fool Stock Advisor recommendation and Google is a Rule Breakers selection. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz has been a Netflix shareholder -- and subscriber -- since 2002. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. Mac Greer does not own any of the stocks in this story. The Fool has a disclosure policy.


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