It is referred to as the internet television network today, but that is not how Netflix began its journey 20 years ago. Since its inception as a DVD by mail service, Netflix evolved into a video streaming player and then into an online entertainment powerhouse through its cutting edge original content. Heralding the transformation is co-founder and CEO, Reed Hastings. In a recent interaction with Outlook Business at Netflix’s headquarters in Los Gatos, California, Hastings appeared to be quite upbeat about his entry into India and believes that, in the years to come, Netflix will be as Indian as it can get.
If you could go back in time and take us through your early days; you have a Master’s degree in artificial intelligence, from Stanford University; you also had a stint with the Peace Corps…
Yeah, I joined the Peace Corps after graduate school and went to teach high school math in Swaziland. But since I was an engineer, in 1991, I invented a product, a debugging tool for software engineers, by setting up a company called Pure Software. We doubled our revenue every year. But my transformation from engineer to CEO came about when we went public in 1995. The company was later acquired by Rational Software in 1997 for $750 million, which gave me the means to start Netflix.
What was the initial idea that you set out with?
Twenty years ago, we wanted to build on-demand TV but the internet wasn’t fast enough, it was mostly dial-up, the typical 56K modems. The closest that we could get to it was to have a website where you got to click and we mailed you a DVD. There was overnight delivery in most parts of the US. That business grew through till 2007, which is when the internet became really fast enough to start streaming content. We continued to evolve, but right from the beginning we named our company Netflix as we knew that one day the internet would be our medium to deliver streaming content.
2011 was a particularly tough period…
We were growing fast, both on the DVD and streaming side of the business. We knew the future was streaming and not DVD. But most of the time companies underestimate the future, they don’t put enough money into it, and so we came up with a plan to take DVD and split it off as a separate company called Qwikster and the pricing was just an outcome of that — it was $8 for DVD and $8 for streaming.
But our consumers were still in love with DVDs, while we were in love with streaming. We wanted to be ahead of the market but we were so far ahead that we got the DVD customers mad at us. So we ended up cancelling the plan. But if you look at it today, we have 87 million streaming subscribers around the world and 5 million DVD subscribers. So, we definitely bet on the right thing. Yes, but we didn’t do it that elegantly.
Given that the US continues to be the biggest market for Netflix, are you seeing cord cutting happening at a much faster pace?
Nobody wants to cut the cord. There are 100 million households in the US which have cable and it is pretty stable. Satellite is taking some share from cable, but in terms of the total it’s still a huge number. People want great content which they pay for. They want sports, news, astro, drama, comedy and movies. Just like they use DVDs, but DVDs didn’t get people to cut the cord. So, the whole cord cutting thing is easy in journalism — to say who wins, who loses. Over time, there may be some cord cutting but I think it will be very modest.
Usually, it’s always China first and then India, in the case of Netflix, it was the other way around.
We’re offering the Netflix service in 190 countries around the world, except China because they are not offering licences. We offer Netflix now in India, in Vietnam and Cambodia, Thailand, Indonesia, Europe, Russia, Latin America. Growing internet speed is a global phenomenon, so we’re not looking at it as a sense of timing or any particular market. In India, Reliance is creating a huge wireless network…
Was that a big trigger to enter India?
The internet has been growing for 40 years, and continues to grow even as we speak. I know in India it’s been very frustrating with the infrastructure. But if you look at it, you will get more 4G data from Reliance…you’re going to get more fibre optic. Eventually, it will be like electricity. Just like you will probably get electricity to every village, you will get fibre optic to every village as well.
India has a strong cable market but rock bottom pricing. How is Netflix viewing the India opportunity?
If you compare it [Netflix India package] to a $5 cable bill then it’s more expensive. If you compare it to an iPhone, which retails at #60,000, then we are a bargain. So, in the beginning, we are mostly selling to people who might get an iPhone; so it’s the high end. But that’s the beginning and we will continue to grow our content. Currently, our offerings are in English, but over time we will grow the library to offer Hindi and 20 other languages. Right now it’s a speciality product, but over time video streaming will grow.
Given that India is a highly fragmented market with different languages, how are you going to adapt, on the content side?
We have a show , so we are already investing in local content. But we will not be out and out Bollywood. If we are going to cater to very specific local tastes, then we are not going to be differentially great at that. Where we can be differentially great is content that not only appeals to Indian families but also to those in Europe and Japan. is a good example. It is created by a French company, filmed in Bogota, Colombia, with a Brazilian star and is hugely successful across markets.