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NewTeeVee Live: Netflix CEO: Why Netflix Is the Killer App for Broadband

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reedhastingsnetflix1In the same way that the iPhone helped sell more Macs for Apple, (s APPL) Netflix (s nflx) CEO Reed Hastings told the audience at the NewTeeVee Live conference today that Netflix can help sell more broadband and broadband services. We’re a killer app for broadband data, said Reed. GigaOM founder and interviewer Om Malik explained it in more Twitter-friendly terms: “Netflix is the iPod of broadband.”

Here’s Reed’s logic: Customers don’t upgrade to faster broadband for email or web surfing, they do it for high-bandwidth online video services like Netflix’s streaming video. Over the next 5-10 years, Internet video technology will expand cable’s broadband relevance to customers, said Reed.

It’s a symbiotic relationship. The more connected devices, the more potential customers for the video-streaming service. Over the past year Netflix has been racing to launch its video-streaming service on a variety of connected devices, including, most recently, Sony’s (s sne) video game console, the PS3. (Reed joked that the Internet Wi-Fi toaster was its next killer device.) Netflix is going to try to wire up every device with its application, he said — Wi-Fi is just a $10 part. “We’re making great progress there,” said Reed. (That may or may not include Nintendo’s video game console the Wii, as Reed wouldn’t comment on Om’s heckling about a Wii/Netflix partnership).

But Netflix is still banking on its mail-order business, and will continue to do so in the short term. Reed said that the company is spending $600 million a year on postage for its mail-order business, a figure it expects to grow to $700 million. But clearly, over the long term, broadband is the future for Netflix. Reed says that the company is expanding internationally and that in some international locations it will launch with its streaming video business only.

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19 Responses to “NewTeeVee Live: Netflix CEO: Why Netflix Is the Killer App for Broadband”

  1. autiger23

    ‘and more devices become available to stream this content to your TV, it’s inevitable that people will cancel or downgrade their cable in increasing numbers.’

    I agree partially with what you are saying. People already are canceling and downgrading their cable as iTunes, Hulu and even many of the networks themselves stream their shows over the internet and more people have computers that easily hook up to their HDTVs. That’s going to happen regardless of Netflix. Netflix is currently (and, I believe, will only ever be) cutting into the cable companies’ profits by taking away revenue from pay-per-view movies. Netflix is a much smaller threat than Hulu and the networks themselves. I realize Netflix is using the cable companies’ ‘pipes’ and that will have an effect on how they structure their usage tiers, which are simply a matter of time, but that’s not because of Netflix.

    But there currently isn’t any consistent threat of competition to the cable companies when it comes to broadband and I guarantee, the majority of the population will not go back to DSL for long, if at all. I speak from experience, because where I live, the usage tiers have already been put into place by the cable company, a few people switched to DSL or other (weak) options and now are going back to cable because they’d rather pay the prices than deal with the terrible speeds. And these aren’t gamer, techie types that I’m talking about- just average users. Not even users streaming media.

    So, as streaming media starts to hit the mainstream even more, there had better be some new competition rise up, or we’ll all complain, but most of us will pay the jackhole cable companies for our bandwidth anyway.

  2. Seems to me like Reed is trying to put a positive spin on a brewing conflict. As more content is added to Netflix streaming, and more devices become available to stream this content to your TV, it’s inevitable that people will cancel or downgrade their cable in increasing numbers. This in turn will also increase the bandwidth requirements for many (aided by the emergence of HD streaming). Comcast (which is who Reed is really referring to here) is not going to be happy with this confluence of events. How will it respond? Likely by raising broadband prices or developing usage tiers, which will cause people to reconsider cable, thus potentially hurting Netflix.

    • Very true, I already know the future. Comcast will say they don’t think its fair for people who use very little to pay the same amount so tiers will be a great way to make everything fair. Plans will start at 30 a month for 5gb, 45 for 50gb, 60 for 100 and 75 for 200gb.

      Of course those who aren’t brainwashed into thinking they are there to help save us money will just ditch our TV services all together.

      All I know is I can’t wait to see Comcast squirm a little.