Q&A: Netflix CPO Neil Hunt on LOVEFiLM, HBO disc deals, DVD subscriber fallout and avoiding the fate of Blockbuster

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netflix-slim.jpgAfter a lengthy wait, the Netflix streaming service is now open for business in the UK, offering a robust catalogue of movies and TV shows onto a wide variety of devices, with an intelligent platform and UI that the company claims delivers the best streaming service currently on the market. But does it have what it takes to compete with LOVEFiLM’s UK dominance, and is Netflix up to the unique challenges the UK market presents?

We caught up with Netflix CPO Neil Hunt at the launch of the UK service to find out.

review-line.JPGLOVEFiLM is already a well-established brand in the UK and, on the face of things, Netflix looks to offer a very similar package. What would you say are the key differentiators between your service and theirs, and what would the reasons be for LOVEFiLM subscribers to join Netflix instead?

I’d say we have a different catalogue of content that is broader and more interesting so they should definitely try that out. We also have a free trial for a month so there’s the option to try it out to see how it works too. We have a tremendous range that you can view on practically any screen you put in front of yourself. LOVEFiLM, Apple TV, do not have that reach. We’ll continue to expand that platform reach over time. We’ve been focussed on streaming since 2007 when we started streaming in the US, and we make streaming work really well, both in quality of delivery and the adaptive bitrate technology we use to put the best possible picture onto whatever platform you’re viewing from.

Finally, but not least, I’d say the focus we have on streaming, with the single price point at £5.99, with no confusing pricing layers or tiers, no pay per view, no DVD, means your choice is very much simpler. That will translate into a much easier decision making process, and an easier to understand user experience. It’s telling that LOVEFiLM is advertising a competitive price point, but it’s not so easy to find on their website. Their website has various DVD programmes in it, and that’s not where we’re competing.

In the UK, one of the big bonuses of your service compared to competitors is that you’re pushing 1080p full HD streaming. However, our ISP set-up is quite different from in the States; we get a lot of bandwidth throttling for instance, which harms video streaming, as well as wildly varying download speeds. Do you see this as a potential barrier?

I think we’ve put in a lot of energy to make it work well in the presence of variable bandwidth. The whole adaptive bitrate streaming system works by starting with a very low quality bitrate, and then quickly escalating the quality of the stream to match your connection capabilities, up to 1080p if you’ve got it. If the bandwidth is being throttled, you’ll lose picture quality, but it’ll still work seamlessly in terms of delivery, with no stutter. I certainly hope that there is no anti-competitive behaviour from providers who have their own video service, looking to penalise us as competitors. But the temptations are the same, and the regulatory framework is similar to other territories where we’ve had no real problems, so we’re not expecting any real issues with that.

Much has been made of HBO’s recent refusal to allow you access to their catalogue of Blu-rays and DVDs in the States. Is this a sign of things to come, what with Netflix now commissioning their own shows? Do they see you as muscling in on their turf?

Competition is always no-holds barred. I don’t think HBO’s posture with respect to the wholesale of DVDs and Blu-rays actually has much to say about their position on streaming content. HBO has rights to a portion of Hollywood output, but not all of it, and we’ve been successful in negotiating lots of other great stuff. We’ll always have a content offering that’s rich. It may not always have every specific piece of content, but there is plenty to go around.
You’re working on bringing a brand new season of Arrested Development to Netflix, a show that, despite critical acclaim, was eventually canned due to low viewer numbers. Word-of-mouth now sees the show more popular than it ever was when it aired first. Is Netflix a good platform for similar slow-burning content?

Perfectly, yes. The key thing about the over-the-top delivery is that the content has a very long life span. We’re not trying to find a mass audience to consume it all at once. We can afford to bring it to two people today, five people tomorrow and twenty people the next, as long as we an get enough people to view it over a window of several years.

All of the personalisation stuff that you see is really about learning about the content and the people, and matching that together. For instance, the first few people viewing new content help us understand what’s great about it, and other users it might appeal to. Then you can deploy that over a long period of time, so that long-length lifespan for content definitely works to our advantage.

Do you think the rise in mobile streaming will affect the formatting of video in the future? For instance, will mobile data caps result in TV episodes being delivered in 5-minute chunks, or longer movies a “chapter” at a time?

To begin with, our platform already offers great “resume playback” and bookmarking functionality; you can start a show at home, and pick off directly where you left it on your mobile device when out and about. What we’ve seen with mobile and to some extent tablet usage is that there is plenty of reach, but shorter views. You can view mobile perhaps as a sampling method, helping you pick what you’ll watch on the big screen. A lot of the content has been produced with the 40 inch or 40 foot screens in mind, so perhaps the small form factor consumption isn’t up to that.

Will we see a shift in the kind of content? Perhaps we will, I’m not sure. I believe we have a platform that potentially allows us to match the content to the form factor. If there are fundamentally different types of content that better suit the mobile format we’ll be able to take advantage of that and promote them for the appropriate devices.
It’s well noted that you had a large number of subscribers drop off the service when you changed your pricing format last year. What have you learnt from that experience?

A lot of stuff about how to run a business! I first want to challenge the supposition though; we changed the pricing on the DVD services but we didn’t change the pricing of streaming. The impact therefore was largely on the DVD space. The reason we did that was in a perhaps over-eager attempt to focus their energies where it really mattered, and that’s on the streaming side.

Do you see streaming as the inescapable future of video distribution then?

Totally. Streaming is the future. My entire team is focussed on streaming.

But surely then, if you’re experiencing drops in subscriber numbers, your customers are saying that they don’t see it the same way, and still want equal importance given to the DVD services and physical formats too?

No, I think it’s that we forced the choice for a lot of people. Many of them did choose streaming. The hours of viewing through the streaming business has grown month on month; we’ve never gone backwards on streaming progress.

The business of the future is streaming, there’s no question about that. We deliver many times more hours of streaming every day in the US than we do through physical copies. In the UK, Canada and 43 other territories we only offer streaming. We deliver to the UK market the best possible streaming product. The missteps we had with delivering DVD were through focussing more energy on streaming. Maybe we reacted too hastily, and we were too optimistic about costumers rationality, but that’s water under the bridge.

Though you’re not the sole cause of its downfall, Netflix has played a substantial part in the demise of the once-mighty Blockbuster. What can be learnt by their failings, and do you ever feel any pangs of guilt for your hand in bringing a massive global brand to its knees?

(Laughs) Pangs of guilt? I don’t feel any pangs of guilt for providing a more compelling service to more people, and fundamentally that’s what free-market capitalism is all about. If you can provide a better product then you should get the resources to do that better. And that’s what this was all about.

Netflix was certainly not the sole contributor. But the lesson to be learnt here is that hanging on to an old business model when a new one presents itself can be bad. Blockbuster waited far too long to find a place in the new subscription model market, at which time it was very difficult for them to compete effectively. We took that lesson, and realised that it’d be a big mistake for us to over-invest in improving and enhancing our subscription DVD service when we needed to get focussed on streaming, which is where the real competition is. Unless we focus all our energy on winning in the streaming space, we might be the next Blockbuster. It’s another reason why, looking back at the DVD issues last summer, it was right to focus on a tremendously compelling product in the streaming market.

You’ve warned investors that the UK venture may take two or so years to turn a profit. At the same time you’re slowing international expansion. How much is riding on this current wave of expansion?

We’ve spent a lot of money licensing content in deals that last many years. It’s for the long haul, there’s no pulling out. We need to be successful, and we can afford to fight with this for a long time. Our goal is to produce a compelling product at a phenomenal price point. Consumers will see that this really is the future.

Great, Tech Digest will be looking forward to how your UK roll-out pans out over the coming months. Thanks!

Thank you. We hope you enjoy what Netflix offers the UK too.

Gerald Lynch
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