Netflix Plans Rapid Worldwide Spread of Its Streaming Service

SAN FRANCISCO -- Netflix plans soon to offer in the U.S. a streaming-only service like its $7.99 monthly offering in Canada, CEO Reed Hastings said at the Web 2.0 Summit. Hulu Plus will probably compete with Netflix, but “that’s probably healthy for us,” he said. “There’s going to be a whole lot of players, not only us.” Hastings expressed confidence that data networks will keep up with video’s demands. “Technology will keep making bandwidth faster and cheaper, essentially following Moore’s law.”

"Over the next three to five years, we will try to get everyone” in the world eligible to use Netflix, expanding from current operations in the U.S. and Canada, Hastings said. In deciding the order of expansion, major considerations are bandwidth and “propensity to pay for television,” such as in the U.K., with its license tax on TV sets, he said. “China is rapidly becoming a first-world country in all attributes,” Hastings noted in discussing attractive markets.

Hulu has achieved double the CPMs -- ad cost per thousand views -- of broadcast TV, because of its much lower concentration of commercials and the “lean-forward experience” it offers viewers, but without the option of fast-forwarding through the ads, said Peter Chernin, who left News Corp. last year as president. He said Nielsen has found on Hulu some of the highest recall rates ever for ads.

Delivering the Internet to TV sets is the big story -- a “revolution” -- in video entertainment in the U.S. and the rest of the developed world, Hastings said. About one-third of TVs sold this holiday season will have Wi-Fi built in, the proportion doubling next year and going to 100 percent in 2012, he said. It will take about 10 years for the TVs in use in the U.S. to be replaced by connected sets, Hastings said. Internet to the TV will specifically be “a video story,” he said, comparing access to conventional Web content, e-mail and even music on TVs to the WebTV service of the 1990s that never won wide adoption. Everything but “real-time oriented” programming, notably sporting events and reality shows, will move toward video on demand, Hastings said.

Hastings said he’s “very bullish” long term on Google’s and Apple’s efforts to bring video to TVs from the Internet. But he said both need major improvements, in Apple’s case to “open up” its technology to applications developers and integrate a Web browser, and in Google’s “refining the price performance.”

"The traditional media people are nervous about both new technologies,” seen as threats to the cable revenue that supplies 50-90 percent of the profit of “the big five media companies,” Chernin said. Hastings said programmers should see dollar signs instead of threats. “For content owners, it’s great to have companies like Netflix and Google bidding against the traditional incumbents, because they just sit back and take the best offer,” he said. Hastings said DBS providers lack significant broadband-access businesses and so “are much more defensive” than cable companies.

"People are a little bit exclusively focused on Google and Apple,” Chernin said. Also contending for the market will be Amazon; the operators of “broadband pipes”; Microsoft, with its Xbox console; and consumer electronics makers, notably Samsung and Sony, Chernin said. Hastings said he expects “no real differentiation in the device,” because all TVs will have browsers built in.