Article

Retail Exec Q&A: Steve Swasey of Netflix

The entertainment giant discusses streaming media, and its plans for a DVD-free future.

February 1, 2011 by James Bickers — Editor, Networld Alliance

2010 was a watershed year for the movie retail and rental space, a year in which the one-time giant Blockbuster declared bankruptcy, runner-up Movie Gallery liquidated its assets and a couple of upstarts whose names end with 'X' climbed to the top of the pile. Redbox, with more than 20,000 DVD rental kiosks, has a market share of 25 percent, according to research from Home Media Magazine. And the new leader, with 36 percent of the market, is now the streaming and disc-by-mail firm Netflix.

According to The Hollywood Reporter, the home entertainment business has fundamentally changed, and Netflix gets most of the credit (or blame, depending on which side of the counter you're on). The company's status as one of the biggest players in video-on-demand has had a negative effect on the sell-through of packaged media at retail, and now the company that got its start mailing those distinctive red envelopes is in a position to play hardball when negotiating with Hollywood.

We spoke recently with Steve Swasey, Netflix's vice president of corporate communications, about where the company has been and where it's heading in the next few years.

James Bickers: Things have changed so much for Netflix since its inception. Are you surprised by how drastically and how quickly the delivery model has changed for the company?

Steve Swasey: Actually, no. Reed Hastings and the other co-founders founded Netflix in 1997 and named it Netflix, not DVDs By Mail, which would have been a lot easier for consumers to understand 10 or 12 years ago.

DVDs were new in 1997 when the company launched. And so, not only was the company introducing a new service that was unknown, they were introducing a new format. I mean, DVDs were not ubiquitous until the mid-2000s really. It was a fast-growing consumer phenomenon. But the idea for Netflix was always going to be Internet delivery. It just took some time for the content to gel, for the technology to gel and for the consumer mindset to gel.

So the DVD was a way for the company to ramp up to get a big subscriber base and to be able to have the revenue generation to afford to invest in the infrastructure to ultimately stream. So now, we’re really a streaming company with some DVDs and that’s a pretty dramatic change in business but it was something that was anticipated all along.

JB: So do you foresee a diskless Netflix at some point? Is that something the company wants?

SS:Yeah, absolutely. That will be in the future. That will be a while because people are still watching on discs and discs are still popular and Blu-ray discs, of course, are coming nicely into the mainstream and have much more robust, better experience with more clarity and more information packed on the disc and so on.

But ultimately, yeah, just like other physical goods have gone away such as travel agencies where we used to go, you know, when you want to fly United Airlines or Southwest you’d go down to the ticket counter in your local town or at the mall or some place and stand in line and talk to an agent and here she would write out your ticket and hand you a paper ticket. That’s all done online now. I mean, there are no more travel desks for airlines and very, very few travel agencies. They just all moved online. So ultimately, the distribution will all be digital, but that’s awhile away.

JB: Who do you view as your primary competition? Is it retail stores? Is it redbox? Is it cable?

SS:It’s time. It is people’s time. Most people who cancel their subscription in Netflix, they do so either under economic pressure, which is obviously a by-product of the recession we’re in because $7.99 a month or $9.99 if you want discs, that’s very little to pay. So if you’re cutting back on that, you’re cutting back on a lot of things. You’re really drastically altering your lifestyle. But the second reason is they’re just not getting into enough movies. They’re not seeing the value because they’re just not watching enough movies.

But as far as competition for video watching, Netflix is growing 52 percent year over year. It’s a pretty robust growth. So there hasn’t been any real impediment that we can see beyond the obvious. Some folks might go to redbox. Some folks might go to a video store still. But with 52 percent year over year growth, the growth of the company is very robust.

JB: What is your company’s philosophy on customer experience? How do you work on cultivating a great one?

SS: Well, that’s the key. The graveyard is full of the bones of great products that were not marketed well or wonderful marketing for horrible products. You’ve got to have a great product that is marketed well and you have to create an inspiring experience for customers — something that is an inspirational brand. People want to engage with that. They want to be involved with it. They look forward to receiving it. They look forward to what it brings them.

So Netflix is very fortunate to be in the business of sending movies to people. And people love movies so that’s already a benefit. People love movies and TV shows. You look forward to entertainment. And so, we’re an entertainment company — we distribute entertainment. Those are the hallmarks of Netflix: convenience, selection and value in equal measure. And we do everything we can to cultivate all three of those and to engage Netflix members in that wonderful experience because we know when they love the experience and they’re getting great value then they talk about it. Word-of-mouth continues to be a very strong marketing driver for Netflix.

JB: So there are two separate major multi-billion dollar industries that are also built around DVD media. Those are video games and adult content. Has Netflix ever looked at either of them?

SS: Yes and we have no interest. For business reasons, we’ve just decided to stay focused on TV shows and movies and we made that strategic business reason not to pursue either of those.

JB: Was that because of the goal of someday being diskless or was there another reason?

SS: Probably a little of both. We haven’t gotten into why. It’s just that the games are not our model nor is pornography our model. So we just don’t pursue those.

JB: What is the next big thing that we can expect from Netflix?

SS: More, more, more content. More devices, better user interface, more personalization. We are always adding more content to the site so you have more to watch — more TV shows, more movies that you’re going to love.

And if you look at the Netflix user interface today compared with two years ago, it’s radically different. We continually improve the search function. We continue to improve the personalization. Just the visual appeal of the site itself, we’re always improving. It’s just a consistent and considerable evolution of what we’re doing, making it better, more content, more devices, better user interface.

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