Rarely is a single earnings report so important that it deserves to be elevated above the others. But with Netflix (Nasdaq: NFLX), tomorrow night's fourth-quarter report is about as crucial as they come.

So many questions are unanswered right now:

  • What will fill the gap when the Starz agreement fades to black next month?
  • What will Netflix do with its free cash flow now that buybacks are no longer an option?
  • Has there been progress brokering affordable but fair streaming agreements?
  • What, if any, edge does Netflix have in negotiating for new content?
  • Will there be more exclusive agreements, such as the deal to air new episodes of Arrested Development?

Investors seem concerned that CEO Reed Hastings doesn't have answers to any or even most of these queries. That's why some say he's one of 2011's worst executives as others say he should have been fired. Me? I still think Hastings is the right guy for the company he founded.

Mistakes are inevitable; great executives make them all the time. The difference between great, mediocre, and awful executives is that the great learn from gaffes and get smarter, the mediocre simply try harder, and the awful remain in denial. Hastings knows he screwed up, and he's smarter for it.

Why I still believe in Netflix
For those with an itchy pitchfork finger, go ahead and skewer me now for buying shares of Netflix at $171 a pop. That's right; I'm down more than 45% as of this writing. I didn't see that heavy content investments would erase all short-term profits.

Yet I still believe in the underlying business because it most closely resembles the Apple (Nasdaq: AAPL) design principles that the late Steve Jobs made famous. Netflix is simple. Start a show on an Apple TV, continue on an Android tablet, switch to a Chromebook, then to a Wii console, and conclude on a Mac. Try that with any service other than Netflix, and you're bound to pull your hair out.

Distribution matters, Fool. Yes, I realize I've offered an extreme example, but I've performed similar switcheroos plenty of times. Last week, I began an episode of the BBC series Sherlock on my Mac during lunch, switched to the Chromebook while waiting to pick up my kids from school, and then finished on our Apple TV. Hulu isn't available on the Apple TV. Neither is Amazon.com's (Nasdaq: AMZN) Instant Video nor Google's (Nasdaq: GOOG) YouTube video-rental service.

All that could change, of course. But if it does, it won't happen quickly. Amazon has become increasingly competitive with Apple thanks to the new Kindle Fire, which, interestingly, hosts Hulu Plus. What's more, both YouTube and Amazon Instant Video feature a la carte pricing reminiscent of Apple's iTunes Store. Netflix doesn't. Simple pricing sets Netflix and iTunes apart, increasing the odds the service will become a standout on Apple's interactive TV sets when they morph from rumor to reality.

Negotiating the non-negotiable
Netflix's priorities are also different. Have you noticed that while Microsoft (Nasdaq: MSFT) and others are mostly negotiating with distributors that Hastings and team are negotiating with creators and studios? I think that's brilliant, and it's reminiscent of how Jobs changed music with iTunes.

As Rolling Stone reports it, Jobs called the president of what was at the time AOL Time Warner to complain about labels suing Napster and others rather working to make digital music downloads legal, affordable, and easy to obtain. The rest is history, of course.

Admittedly, I don't know Reed Hastings. I've never met the man. But if you look at what his company is doing, it becomes clear that he cares about content in the way that Jobs cared about music.

Consider the deal with AMC Networks for broadcasting its original content; including acclaimed post-apocalyptic thriller series The Walking Dead. Or the exclusive deal for the CW's past and future scripted shows. Or the exclusive rights to broadcast David Fincher's House of Cards. Or, again, the Arrested Development arrangement. All of it speaks to a passion for content, whereas distribution is a software problem solved by great engineering.

Hastings wants to give viewers an all-you-can-eat smorgasbord of great content. I get my fill weekly, with the 2005 re-up of Dr. Who and the aforementioned Sherlock as current obsessions.

Critics will say Hastings has also made enemies in Hollywood, and they're right about that. The original Starz deal angered some studio executives for how it allowed Netflix to exploit a loophole in getting newer releases to subscribers. But is that really so different from how Jobs muscled music labels into accepting $0.99-per-track pricing? Both moves caused early discomfort while favorably changing the dynamics of aging industries.

Making the call: buy
Yet work remains to define the industry standard for what makes a fair streaming deal. Maybe it'll never happen. But for my money, Hastings is moving the industry forward by negotiating with the right people and signing the right deals. Accordingly, I've decided to hold my shares and stick with an outperform call I made in CAPS back in late 2007.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple, Google, and Netflix at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

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