Netflix’s Reed Hastings Re-Elected in a Landslide

Editor’s note: Davis Freeberg is both a customer and current shareholder of Netflix. This post should not be construed as financial advice.

By Davis Freeberg

Ok so maybe it’s not really all that big of a surprise that Reed Hastings won 99% of the votes today in Netflix’s Director vote, but it’s a nice contrast to Blockbuster’s likely shakeup.

The official results of the vote were 50,866,826 for Hastings and 432,854 withheld. Director Jay Hoag was also re-elected with 50,851,075 for and 448,605 withheld. What I found interesting was that there was a difference of 15,751 votes between the two. It’s probably some glitch in the system, but I can’t help but wonder if a small shareholder was sending a subtle message to Mr. Hoag? Even stranger than the difference between Hastings and Hoag, was the ultimate winner, KPMG who received 51,127,607 votes to stay on as auditor with 89,793 votes against them.

I’ve got to admit that as a shareholder, I voted for Hastings, but after hearing his acceptance speech, I was less then thrilled by his plans for VOD. In last year’s annual report, Hastings wrote that they were “currently a $100 Million-plus customer of the studios, and they have been receptive to our desires to expand consumers’ movie viewing options.” Is expanding consumers’ viewing options really at the heart of what Netflix is after or are they merely paying lip service to the idea.

Rather than use some of this significant clout with the studios to push forward with alternative delivery plans for things like VOD, Hasting used some of his clearest language to date, that he is going to focus the company’s resources on DVD and HDDVD. During today’s meeting he said that the company’s goal is to get to “20 million subscribers, before expanding into downloading.”

Considering that Netflix only has a little over 3 Million subscribers today, it’s a little discouraging to hear him say that the company has to grow it’s subscriber base by over 500% before they can negotiate this with Hollywood.

During most of the presentation Hastings kept trying to keep the focus on DVDs. He said that “the big entertainment story in the next 5 years is not Video On Demand, it’s high def DVD. That’s where the profits will be for the studios, that’s where the consumer focus will be, that’s the big next generation.”

The underlying reason for Hasting’s position is that the content producers want DVD and these guys have significant clout. The consumer on the other hand would be much more receptive to VOD delivery but they have no one to champion forward this initiative for them. This is disappointing.

Another area where lack of progress is being made is with regards to Netflix’s previously announced partnership with TiVo. The first question that was asked during the meeting was about TiVo. Although Hasting’s said that they are working with TiVo and with others, he characterized the partnership as one of “slow intensity.” He downplayed TiVo’s role in their strategy and instead emphasized that he sees TiVo as a “long term partner.”

It looks like the only good thing, in the near term, that came from the Netflix / TiVo partnership was Michael Ramsey leaving Netflix’s board. Without the endorsement from Netflix’s puppet masters, the Hollywood studios, a TiVo Netflix VOD type partnership seems sunk.

If all that TiVo and Netflix have today is a slow intensity long term partnership, I’m not really sure where the value is added for TiVo, other than the fact that they can use Netflix’s good name as a partner.

Of course with TiVo and Comcast now partnering, the likelihood of Netflix seeing significant revenue from Tivoflix is looking even less likely.

Although I can understand that Hollywood and Netflix may feel that the DVD distribution model makes more economic sense for both of them at the present time, I worry that customer desires and convenience suffers in the long run. VOD is a better, faster, cheaper delivery method for movies, but it would appear that better, faster, cheaper is not something that Hollywood or Netflix really care about. Hopefully somebody else will or as the rogue Napster forced digital music online perhaps it will take BitTorrent or other rogue movie distribution technology to force companies like Netflix and TiVo into offering us a truly compelling VOD package.

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3 Comments

  1. Wes says:

    Thomas… you are forgetting that activaly listening to the customer and responding ONLY happens when revenue starts to decline! Why listen to the customer when revenue is good? 🙂

  2. Becky says:

    Of course Netflix must wait for Hollywood to get comfortable with the idea of VOD. Where else is Netflix going to find content besides Hollywood?

    VOD is NOT better, faster, or cheaper, YET. Netflix delivers on DVD in one week as much data as resides on the entire Internet.

  3. VOD is undoubtably better, faster & will ultimately be cheaper, once the studios get their act together. Hastings point is that the studios don’t want VOD because they are afraid of it’s potential to eat into their profit margins. The bottom line is that consumers will pay more for DVDs then they are willing to pay for VOD. This is why we are going to have outdated technology hoisted upon us. While I don’t personally use BitTorrent (I’m worried about viruses more then the RIAA.), it’s clearly cheaper then paying for Netflix, Blockbuster or any other service. In addition to BitTorrent, there are many sites on the internet that allow for legitimate free VOD. Open Media Network (OMN.org) offers great microcontent right now with a “season ticket.” Ourmedia.org also offers great independent content and if you haven’t checked out the internet archive yet, then you are really missing out. In addition to seeing independent producers begin to embrace blogosphere publishing, we’ve also seen that Time Warner has been very progressive with their download policies. Whether it’s allowing you to restart a show from the begining (with commercials unfortunately) or whether it’s the launch of their new Video Games on Demand service, it shows that Big Media is starting to get more comfortable. My question was simply this, if studios were open to the idea of VOD, when Netflix was a $100 Million customer, then why are they closed to the idea as a $500 Million customer? The answer is simple, the media underestimated Netflix’s potential and now fear that they could actually popularize VOD, if they are given the chance. I’m not blaming Netflix, in fact as a shareholder I agree with their decision, but as a tech geek, I find it very disappointing.