Summary:

In an interview with John Byrne, BusinessWeek.com’s executive editor/editor-in-chief, Netflix (NSDQ: NFLX) CEO Reed Hastings conceded that h…

John Byrne and Reed Hastings

In an interview with John Byrne, BusinessWeek.com’s executive editor/editor-in-chief, Netflix (NSDQ: NFLX) CEO Reed Hastings conceded that his business faces similar troubles to what magazines are up against, as the use of broadband video is set to rise. For now, though, the DVD rental business is still growing and he’s content to pursue the streaming business down the road. Since this was during the luncheon session at the Magazine Publishers of America’s Innovation Summit, Byrne asked if Hastings reads any magazines. With a smile that was half guilty, half mischievous, Hastings listed titles like The Atlantic Monthly and BusinessWeek, and added: “I read them online. I love the content, only now I don’t pay for it.”

Before the interview began, Byrne addressed the sale of his publication from McGraw Hill to Bloomberg. He didn’t offer any details about the deal, but said that he believes the handover to Bloomberg will turn out happily.

Focus remains on DVDs: Hastings acknowledged that Netflix will have to deal with the same kind of problems as the DVD business erodes. Right now, streaming rentals is a benefit to DVD subs and the company has consciously planned not to turn it into a separate revenue driver, for fear of cannibalizing the main business. Hastings: “DVD shipments grew 25 percent last year, which will continue as video stores close. Then there’s the streaming business, and that doesn’t generate incremental profit at this point. It’s just to get people used to it at this point. We have the same tensions between print and online. The broadband people can’t believe they have to support the DVD side. But we’re working towards the day when streaming is dominant. We’ll have to deal with it. But right now, our focus remains on the DVD side.”

Social failure: During the audience Q&A, Hastings was asked about the company’s approach to social networking. Netflix mostly failed in that area, Hastings admitted, saying it set up a separate social-net function that would let friends suggest movie rentals. It was eventually scaled back and is just a tool. “We saw it early, but what we didn’t appreciate was you didn’t just want to share movies. They want to share a lot of other things in their lives and movies at the center aren’t it for most users. Social networking belongs to Facebook, not to Netflix. So we use a Facebook app, and we’re one of the things people can share through that social net.”

Netflix for mags? Another audience member asked if a “Netflix for magazines” could work, where readers could get an unlimited number of magazines delivered for a set fee. “There’s no marginal cost, so I don’t see why not. Think of Microsoft (NSDQ: MSFT) Office, bundling all those products together. You could take a number of magazines and bundle the subscriptions.” But Byrne returned to his earlier question, and again asked Hastings if he would pay for it. Hastings hesitated, but with Byrne’s gentle prodding — and looking out over a magazine audience who just finished their lunch — shrugged and said sure. But he did add that it would be a tough decision if the content is already free. Hastings then tried to downplay the value of subscriptions. Despite the severe ad recession, Hastings insisted, “Ad support is the most powerful model there is, relying on subscription dollars is secondary to that model.”

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