If Epix ends its exclusive streaming deal with Netflix, as analysts increasingly think is increasingly inevitable, the subscription giant has more than enough television shows and movies to keep customers from defecting, Netflix CEO Reed Hastings assured investors on Tuesday.
Hastings declined to say whether he was resigned to the fact that Epix would at least modify its pact so it could sell rights to Netflix competitors like Amazon and Redbox, but he tried to downplay the cable channel's importance to its overall array of offerings.
"It's working very well for both Epix and us at this point," Hastings said, but added that "Epix is not a particularly large source of total viewing."
Hastings said that television shows like "Mad Men" and "Breaking Bad" were far more popular with his customers. Netflix signed a pact with Epix — a cable channel that carries movies from MGM, Paramount and Lionsgate — in 2010 for a rumored $1 billion. But in an earnings call last May, Philippe Dauman, CEO of Paramount's parent company Viacom, indicated that those rights were unlikely to remain exclusive once the two-year exclusivity clause in its five-year deal with Netflix expires in September.
Hastings' remarks came as part of a call with analysts and news media after the company released an uneven second quarter earnings report that showed sluggish subscriber growth. Shares of the company plunged 15.77 percent in after-hours trading to $67.71 as investors worried that Netflix has not been able to stop the consumer backlash that resulted from its controversial price hike of a year ago.
The evidence that its attempts to turn the page on that bruising period is providing difficult, is that Netflix suggested it would be "challenging" to meet its projections of increasing its domestic subscriber rolls by 7 million streaming customers by the end of the year.
Revenue at Netflix jumped 13 percent to $889 million from the same period a year ago, and net income plummeted 91 percent to $6 million.
But Hastings stressed that he felt that despite the lackluster subscriber growth and the potential that competitors will get their hands on Epix's movies, Netflix had enough content to allow it to thrive.
In particular, he stressed the streaming service's dive into original content. Hastings said that viewers can expect a second season of "Lillyhammer," a fish out of water comedy starring Steven Van Zandt as a mobster on the run in Norway. Also on deck are a new season of the cult comedy "Arrested Development" and "House of Cards," a political thriller starring Kevin Spacey, that Hastings said will debut in the first quarter of 2013.
The Netflix CEO promised that these new programs and the company's decision to release each episode of a season simultaneously in deference to its customers' binge viewing habits, would make the service "…a better and more unique experience."
He also downplayed any tensions that Netflix's entry into original programming might create with cable networks, refusing to rule out a detente with HBO.
That relationship has been fraught at times, with Jeff Bewkes, CEO of HBO's parent company Time Warner, labeling Netflix the Albanian army and a 200-pound chimp. Hastings has returned fire by calling HBO's streaming service his company's primary competition. Yet, the Netflix chief told investors Tuesday that HBO may one day become a collaborator.
"It’s not a zero sum game between HBO and Netflix and there may be ways of working together," Hastings said, but noted that there was "nothing particularly pressing" in the works.
While Netflix's global expansion into places like Latin America and Europe has slowed as it has refocused its efforts on shoring up its domestic business, Hastings said that it was still evaluating new territories. In assessing which new countries might be ripe for expansion, the Netflix chief said the biggest issue was not native streaming services but illegal downloading.
"Piracy is one of the biggest competitors," Hastings said, but made it clear that making Netflix a global brand was paramount.
"Most of the world will have services like Netflix and we would like to be that service," he added.
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