The World According to Reed Hastings

Coming off a rough few months, Reed Hastings, CEO of Netflix, spoke at the 39th annual UBS Global Media and Communications Conference this week, but he wasn’t showing any signs of diminished confidence. Hastings made some predictions for the future of telecommunications and video, and he was bullish on Netflix’s future.

Hastings repeatedly said the future is "fiber everywhere," and he compared the laying of fiber to the stringing of electrical wires at the beginning of the last century. "More bandwidth can go through a single fiber optic than ever in the past," he said. "As an example, peak Netflix viewing on a Saturday night on a global basis can still fit inside a single fiber optic. We’re going to see fiber to every home and neighborhood and business and school. Over the next 20 years, you’re going to see fiber everywhere. If you look at what Brazil is doing, at what FiOS is doing, at what Australia is doing buying the copper-based telco Telstra and replacing it with fiber, it’s absolutely incredible."

Coincidentally, Pyramid Research said yesterday that fiber-to-the-home (FTTH) lines are projected to almost triple globally, from 68 million in 2011 to 198 million in 2016, driven by uptake in China, Russia, and the United States and increasing deployments from Western European incumbent operators. Pyramid expects FTTH broadband to generate nearly $116 billion in service revenue by 2016 worldwide, creating opportunities for all of the stakeholders in the value chain.

But not all existing video providers may be convinced of the all-fiber future, and they’re concerned about bandwidth congestion from online video.

Asked if he thought pay-per-bit billing might emerge, Hastings said, "That would be unfortunate because it’s not based on the cost. There are high fixed costs to roll out fiber, and there’s some peak speed costs to supply the routers. (But) if you stream off peak, there’s zero marginal cost. It’s 100 percent about peak loading. Off-peak, the Internet is free." (For more, see Usage-Based Billing Gains Steam, May Garner Low-End Subs).

Hastings also predicts that smart TV manufacturers could become major competitors in the video delivery space.

"The untold story is what’s happening on the endpoints with smart TVs," he said. "If you’re a TV manufacturer, you don’t want to be a dumb monitor on the back of a cable, satellite or broadcast system. You’d much rather have software written for your platform. They (TV manufacturers) would like the remote control from the TV to be the remote control you use most of the time. They want you to live in their device on their remote control with apps built into the TV. So TV manufacturers see the ability to turn their space into as interesting, dynamic, creative a space as the smart phone. I think you’re going to see that explode over the next five years."

As for Netflix, he sees the company taking over the world, well almost. Since its pricing missteps in the summer, the company is focused on returning to profitability. (For more, see Hastings Attempts to Rectify Netflix’s Bad Publicity and Netflix Defends Pricing Strategy). Although Netflix has expanded its service to the UK and Canada, Hastings said, "We’re not going to continue with our global rollout until we get back to profitability."

But the company has big ambitions, wanting to purchase content from global providers "to create a service of the world’s best content for the world’s citizens. That’s our 10-year ambition to pull that off. We’re working country by country, market by market."

Not missing a beat when an audience member said Netflix’s library of streaming content wasn’t great, Hastings replied: "The fundamental problem we have is a brand perception around content because consumers want the full picture. When they go to a music service like iTunes, they get all the music. When they go to a book service like Amazon, they get all the books. When they go to a travel service like Expedia, they get all the flights. It’s a basic presumption."

He said video’s business model has evolved from cable: "We’re a cable network from a rights standpoint and we compete with many other cable networks, and there’s a whole bunch of exclusives in that space. Unfortunately, no one service can be the complete video solution. It comes out of the cable network evolution where it was always exclusive against each other. Book retailers were never exclusive against each other."

But he forsees these problems being solved through metasearch engines that search across a range of services such as Netflix, HuluPlus, the open Internet, and other applications. And who will provide the metasearch? Smart TVs.

"Fiber optic everywhere provides the substrate. Smart TVs enable this amazing interaction paradigm," he concluded.

-Linda Hardesty