HN: Why don't you work on Saturdays? It seems to be such a competitive advantage for Blockbuster, and everybodys interested in getting more movies… Is it cost-prohibitive?
Hastings: Prohibitive is a strong word. It’s a cost tradeoff, right, because then you can’t run a standard five day shift. So when you move to a 6th day, then you’ve got not one management team, you’ve got staggered. So the cost is not just 15% more, because you’ve got to figure out dual management, and how you’re going to infringe on people on people’s weekends and yet give them a life. So we make sure that the Monday through Friday works well, and that’s the focus.
HN: Can you be more upfront with the readers about “smoothing” or “throttling?” because there’s no magic number. I know you have to allocate movies based on what’s available, but a lot of my readers would like you to be more upfront and say that maybe it’s 13 or 15 movies a month rather than unlimited. What are your thoughts on that?
Hastings: Two. We have the highest customer sat on the entire Internet. Of all of the e-commerce companies, to be anywhere near Amazon is an incredible compliment. To be a hair above them, and #1 in e-commerce satisfaction says that what we’re doing is a great set of tradeoffs. That’s the main thing we focus on is how we improve continuously. Now we’re two points above Amazon, and we want to be 4 points above Amazon and be even better. The tradeoff and disclosure is we certainly want subscribers to have a sense of straight-forwardness, and we’ve improved the terms of service a lot and its clarity, and the tradeoff is where does it go into trade secret relative to our very aggressive competition with Blockbuster. You know we have to balance those, we try to make a balance of it. I don’t that that it’s perfect, but it’s pretty good because the model is working. More people are signing up, it’s growing. Mostly I take it as a sign, a compliment, that people care enough that they want to know the details. And it is frustrating, I’m sure, for them to say that it’s a trade secret, but much of it is.
HN: Noe638 asks, If you were the CEO of Blockbuster, what would you do?
Hastings: I don’t know what I would do. It’s like people guessing at what they would do if they were running Netflix. If someone was really in and running Blockbuster, they would have a lot more knowledge about it than I do, so I can’t really intelligently comment.
HN: That’s fair. You don’t really want to give them any ideas…
Hastings: No, but I would say they they’re very honest. So a great case is Enron. They did a deal with Enron in 1999. It didn’t work out, so they recorded it as a loss like a normal, honest business. Of course Enron recorded it as a huge profit. We compete fiercely, we respect them – they’ve been very aggressive, creative and very high integrity.
HN: I know you’ve answered this question several times, but maybe you could put a new spin on this. Dave, Aron, and others asked “Why don’t you do game rentals?” You’ve answered the John Madden question. Is it pure economics?
Hastings: We might as some point in the future. It’s something that we look at. Gamefly is probably the best service that does this model for games now. We keep an eye on them and track it. But for now the movie market is so large that we feel like it’s best to focus on that market.
HN: Sean asks, “What are you going to do with the $100 million?”
Hastings: Mostly just put it in the bank. The companies as we go into downloading that we’ll be competing with, Yahoo!, Apple and others, all have multi-billion dollar balance sheets. So we feel that it would be prudent to have more than we did before. We had about $200, now we have a little more than $300.
HN: Do you think that there’s going to be a bidding war for content for exclusives on downloads?
Hastings: So far, if you look at the music space, there have been no exclusives. And if you look at the download movie space, which is less mature, Movielink, CinemaNow, etc., there’s no exclusives. So I think it’s unlikely, and I think it’s because the content owners can make more money having many channels carry it. For example, with DVD, they have us and Blockbuster, Walmart and Amazon. That way it maximizes customer satisfaction and revenue for them.
HN: Aron asks, Why not an in-theaters tab? Why not make more money by selling tickets to shows? You’ve already got the save this movie button, why not sell tickets?
Hastings: It’s possible that we’d get into that over time. Theres two companies that lead that market, Movietickets.com and Fandango. It’s fragmented today, it’s hard for any company to give a good solution, including Yahoo! and others. Our current market in DVD rentals is so large, we’re a little under $1 billion in revenue this year, Blockbuster is at $6 billion, and Movie Gallery is at 3. So there’s a lot of room to grow in the current market, and that makes us want to improve our service, continue to push up the customer sat ratings, above where they are today.
HN: Netflix Shill asks, Business model patents. What is your view on them? Obviously they’re a defensive mechanism for you at this point. Should they exist?
Hastings: I don’t have an informed view on the different types of patents. I know business method is like genetic stuff that’s patentable, and I know there’s controversy about them, but I can’t tell you why. I can tell you its part of U.S. Law so we accept it.
HN: Riklogic asks, What’s the highest number of movies on a 3-out plan that someone can expect? This sort of readdresses the smoothing issue.
Hastings: Gosh, it all depends on how fast someone turns them around. Where they live, what movies they select – it’s a pretty high number. If you did it on the 3-out plan for $18. I don’t know what the max is that anyone’s ever gotten.
HN: Gregory asks about compensation for signing your friends up. Some sort of reward or free month or something else if you refer so many people. You guys seem very savvy online, with the friends list and profiles. Is there some reason you haven’t figured out a compensation program for people?
Hastings: Yeah, we tested it a couple of years ago. What we found is that it doesn’t increase the amount of friends you sign up, and that makes sense, really, when you think about it. If you love a service, you tell your friends because you like your friends. If you don’t like a service, you’re not going to tell them, for $50, you’re not going get your friend to do something you think is lousy. When people are dealing with friends, the right thing to do is to give the friend a benefit. Our standard free trial is 2 weeks, and sometimes we’ll allow you to give your friends a one month free trial, but the benefit to your friend. It’s taking advantage of human altruism towards your friends, and trying to improve our service rather than trying to get one to sell out your friend in that way.
HN: Scotty and Aron ask, Why don’t you include more information about movies, such as writers? Become more like IMDB? You’ve got the data, it’s pretty easy to do, and updating 60,000 movies can’t take that long? Why don’t you make the site more resourceful?
Hastings: Well it absolutely should be comprehensive on the movies. Maybe writers is something we should add, cause if we have the data, it’s pretty easy to add it. That be a thing we should be doing.
HN: Why don’t you have a blog? You’re very opinionated, you’ve written opinion columns, you’re outspoken in several areas. Why aren’t you a blogger? I’ve heard rumors that you have one, a secret one…
Hastings: You know I tend to communicate verbally, and there’s no good reason I don’t have one per se. In education stuff, so I do a lot on that side. You know, I’m trying to think… Would I have the Reed Hastings blog, or would it be the Netflix blog, or would it be the education blog. It’s an opportunity out there, but I just haven’t done it yet.
HN: Do you read Hacking Netflix?
HN: Oh boy. What do you think of it?
Hastings: It’s a useful impression. I caution people internally that it’s over-represented with highly passionate people, so it’s not an accurate market research indicator, nor is it trying to be. But it’s a provocative independent voice, and something that people read, forward, as they do the NY Times. To be mentioned in the same sentence as the NY Times is a great thing.
HN: Sean asks, If you believe so much in the company, why are you selling stock?
Hastings: Because I’m over-concentrated. In asset allocation what you want to do is have a diverse portfolio, and I’m heavily concentrated in Netflix stock.
[Note: I bungled this last question because I didn’t understand the Overstock relationship to the question. Reed Hastings figured it out and answered the question anyway.]
HN: Aron asks, Is there a Sith Lord?
Hastings: That’s a reference to…
HN: Star Wars. It’s a movie-related question. He’s asking if you know if there is a Sith Lord.
Hastings: I’m not a big Star Wars buff, so I’ll have to pass on that one.
I wonder if question that doesn’t refer to the short-selling thing, because Overstock. You know he says that there is a Sith Lord that is manipulating his stock with the short sellers. I bet that’s a reference to it, because in the last year, like in the Wall Street Journal, he says there is a master Sith Lord out manipulating – which for all I know may be true. Could be…