By Davis Freeberg
Editor’s Note: Davis Freeberg is both a current customer and shareholder of Netflix. This post should not be construed as providing financial advice.
Over the last couple of years I’ve seen one rumor after another that Netflix should be acquired by a larger company. There have been suggestions that the company was at one point for sale to Blockbuster for $50 million. When Wal-Mart first entered the DVD rental market some suggested that Wal-Mart would be better off acquiring Netflix, then trying to build a rental program. VOD Market Research seemed to feel that Netflix was the right fit for Comcast VOD program. The most recent rumor has been that Amazon may have offered $42 a share for the company. Netflix has consistently refused comment on most of the rumors, but in an interview with Inc. magazine Reed Hastings throws some cold water on the buy out conspiracy theorists.
“It’s been eight years at Netflix and I feel it’s just beginning. I have no need or desire to be acquired. We’re making money, haven’t used cash for three years, and have no problem with scale sufficiency. Being an entrepreneur is about patience and persistence, not the quick buck, and everything great is hard and takes a long time”
Maybe it’s time to put the buy out rumors to bed. This really is just the beginning for this company and I know that I will be excited to see the direction that Hastings takes his company. At 4 million subscribers, they are only now just beginning to pick up critical mass. A foray into advertising will provide some additional revenue for the company, but no where near the potential that they could make as a production studio. Hastings makes it clear that he doesn’t want to create content, but to help publish content for other artists.
“Our focus is on getting to five million, 10 million, 20 million subscribers and becoming a company like HBO that transforms the entertainment industry. We want producers and directors to be able to find the right audience, to change the experience of helping people find movies they love. Netflix has customer loyalty; it’s a passion brand. I’ve always thought trying to change consumer behavior is scary, and most companies that promote that fail. But when it works, like iPod, it works big.”
Netflix’s transition into a movie studio will undoubtedly take years to occur, but Hastings’ comments are a very clear indicator that he is thinking ahead and that he does not intend to go anywhere until he can transform the movie industry, in the same way that he is shaping the rental industry. Netflix has so far been very successful at tapping into long tail demand. If they are able to publish independent films inexpensively, then we could see them take advantage of that passion to access the long tail supply.