Netflix CEO Reed Hastings didn’t sound overly concerned following HBO’s surprise announcement Wednesday that it’s entering the stand-alone streaming space.
“If you think about the general society all moving to Internet TV, like HBO’s announcement today, there’s a lot of feeling [that] everyone is going there,” Hastings said during a webcast following the company’s third-quarter earnings report. “Not exactly sure the rate of transfer, but you know Internet TV is going to be everything in a couple years.
“We and HBO have completely different content,” Hastings said. “I don’t think it will be a significant impact at the consumer level.”
But will consumers flee Netflix for HBO’s service?
“On the consumer side, it’s one more channel,” Hastings said. “So already consumers subscribe to us, Hulu, Amazon and they do pay-per-view. And they do DVD and they do cable. There are so many great sources of entertainment, and consumers subscribe to many of these. So it’s not much of a change in the direct-competitive landscape.”
“As we bid for content, it will be more significant,” he said.
Hastings, Chief Content Officer Ted Sarandos and Chief Financial Officer David Wells also explained the company’s motivations behind the deal for four Adam Sandler films. As TheWrap previously reported, the company’s leadership made clear that global expansion was a primary driver.
“A lot of our content choices have proven to be extremely global,” Sarandos said. “‘Orange is the New Black’ and ‘House of Cards’ have been huge successes not just in Australia, but in China. All over the world. These buys both bode well for future expansion in all territories.”
So why did Netflix decide to partner with Adam Sandler?
“The Adam Sandler decision was driven on following market after market seeing Adam’s films from his deepest catalog to his newest releases outperforming not only their box office, but performing wonderfully in every territory, defying conventional wisdom that American comedy doesn’t travel,” Sarandos said. “Adam is not only a proven 20-year star — meaning he has a movie that performs well in the box office every summer for 20 years — he is a real global superstar.”
As Netflix pushes for growth in European countries and eyes territories like China, high-quality and exclusive content is seen as a key element in the streaming media company’s strategy to gain subscribers. Currently, 75 percent of Netflix’s some 50 million subscribers are in the U.S., while the company has barely scratched the surface internationally, where 80 percent of the world’s Internet users live.
“With the Adam Sandler multi-movie deal, it’s establishing a sense in the subscribers of, ‘I’m thrilled with Netflix because I’m into Adam Sandler, I watch this and now the next movie and the next movie comes,'” Hastings said. “So think of it with us playing with this idea of episodic and serialized but now in the movie form and seeing what kind of great brand allegiances we can create for Adam’s fans. That’s not everybody, but they’re very identifiable.”
But while box office is a clear indicator for successes in theatrical releases, the question remains: How will the company judge success with its original feature film content?
“I would think about it the same way we think about our successes around original series, or any of our licensed series,” Sarandos said. “Relative to what you’re paying, do you get this kind of three legs of success: the viewing, the brand halo and the net subscriber additions based on the access to the content?”
And subscriber growth is incredibly important to Netflix investors. While the third-quarter subscriber numbers were solid enough to match or beat Wall Street forecasts, as well as internal company estimates, the stock plummeted in after hours trading. Investors might have been disappointed by the 3 million-plus subscribers Netflix added in Q3. Forecasters expected to see 1.37 million new subscribers in the U.S. alone, but the company got just 980,000.
Analysts expected earnings per share of about $0.90-$0.92 per in 2014’s third quarter, while Netflix itself projected an EPS of $0.89. Either would have been a shift from last Q3, when the company reported $0.52 per share in earnings.