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Kicking off the call, Netflix (NSDQ: NFLX) CEO Reed Hastings predicted that the DVD-by-mail segment would continue expanding for another 5-10 years, despite the deteriorating economics of the DVD business and the emergence of digital distribution. He immeditely got into the company’s digital strategy, saying: “We don’t plan to enter the pay-per-view segment (Apple (NSDQ: AAPL), Amazon (NSDQ: AMZN), et. al) or the ad-supported space (Hulu)”. The plan is to focus on subscriptions.
— Roku: “It’s been a huge hit, with strong reviews, strong sales and great subscriber satisfaction… in the future, Roku boxes will support other internet content (not just Netflix).”
— XBox: Normally the plan is to pursue ubiquity, but in this case it was worthwhile to do an exclusive deal: “Its impact for this year is unclear… we and Microsoft (NSDQ: MSFT) have yet to understand how much will drive Live Gold subscriptions, console sales or Netflix subscriptions.” Also, there’s still one more hardware partner coming.
— Kiosks: Will cause more pain to traditional stores than it does DVD-by-mail.
— Gross margins: Gross margins expected to grow in Q3 and Q4 despite investments into digital content (This is key, as it’s been a major concern for investors).
Q&A: Interesting note: The company is doing all Q&A via email. Last quarter the company was forced to do this via technical problems, but they got a lot of good feedback, so now they’re trying it again as a test. Wonder if this will start a trend.
— Competition with Amazon for CE partners?: We’re in different areas. They’re in PPV, and we’re in subscriptions. Both are necessary.
— Digital usage: “We haven’t given any color on the specific trends… it’s just too early to tell. We don’t have a control group that doesn’t get instant watching. There’s really not an easy way for us to say anything conclusively. We’re very encouraged… but at this point we don’t have any specifics.”
— Economy: We appear to be unaffected by this negative climate.
— Blu-ray: “Blu-ray usage continues to be very low… low single digits.” It could help if device prices decrease this Christmas.
— End of Red Envelope: No meaningful cost savings.
— Roku sales figures: No comment on recent report of 100k Roku boxes sold. Also, it’s too early to talk about consumption patterns of Roku buyers, since at this point, Roku buyers are all early adopters, and not necessarily typical.
— Revived MovieLink: “MovieLink is a pay-per-view model that will compete with Apple and Amazon in that segment. … We’re in a different segment.” (They’ve been making this point several times, that they don’t compete with ad-supported or PPV models, but you have to wonder how legitimate that is: can’t consumers switch from one consumption model to another?)