IT’S a brave man who takes on BSkyB. The UK’s undisputed champion of subscription TV continues to go from strength to strength, seemingly impervious to the problems facing its biggest shareholder.
But there is a new kid in town who wants to muscle in on the action. Netflix launched its video streaming service in the UK yesterday and, while it is still a relative unknown here, it is already established in 46 other regions, with over 20m subscribers.
It is now preparing a marketing blitz in the hope it can emulate here the success that has seen it become one of the biggest online movie vendors in the world. But to do that, it will have to go through Sky.
Leading the charge is chief executive Reed Hastings, a man whose very name seems to guarantee him success. It is the kind of name you’d choose if you wanted to reinvent yourself, like when Homer Simpson started calling himself Max Power. If he hadn’t been a chief executive, Hastings would probably have been an astronaut or a news anchor or the President.
In person, he cuts an unassuming figure, part computer programmer, part history professor, with a corduroy jacket and neatly-cropped goatee.
But the mild-mannered chief executive has Sky very much in his sights: “It hasn’t had much competition for a long time – we’re going to help provide that. What we see in the UK is a very developed market with a lot of demand... We see a great opportunity.”
Hastings, however, knows he has his work cut out. Sky Movies has deals with all six of the major Hollywood studios, giving it first access to movies as they become available to rent.
“It’s difficult,” admits Hastings. “Sky has a very strong position. But as we grow we will bid against them and perhaps win one or two and that will help.
“We launched 18 months ago in Canada and after a year we were able to win the Paramount deal there. Sometimes you just have to build up, then you can win.”
What will constitute winning? “We want millions of members in the UK. Sky Movies has close to 5m users – we want to be competitive.”
Hastings is less keen to talk about the role regulators could play, with Sky’s dominance of the market a longstanding source of consternation amongst its rivals.
“I don’t know what regulators will do,” he says. “I’m sure they’ll do their job. We need to focus on what we can control.”
Netflix started business as a DVD rental operation, the US equivalent of LoveFilm, although Hastings says he knew it would end up moving into streaming – “that’s why we’re not called Postflix”.
Video streaming, or “over-the-top” content, is the future of the TV industry, he says: “Online is going to replace broadcast in the same way the mobile phone has replaced the landline. All the growth will be in the mobile side of things rather than broadcast.”
Hastings’ bet on online movies has paid dividends. Netflix has seen a meteoric rise, with its stock surging more than 200 per cent in 2010 alone.
The last year, however, has been a bumpy ride. The former darling of Wall Street fell from a share-price high of almost $300 to a low of $63 after a string of blunders. A disastrous price hike in its DVD business led to a loss of at least 800,000 subscribers, with more thought to be heading for the door.
Announcing plans to split the DVD rental arm from its streaming business, before performing a screeching U-turn, made matters worse. Jittery investors were also unconvinced by forecasts that the UK business could take two years to become profitable. Hastings says this is normal but has still opted to halt Netflix’s international expansion while the UK operation beds in and the firm returns to global profitability.
Against this backdrop, the UK business takes on even greater significance. The question is, will it succeed where others have failed?
Its service is impressive. The slick interface has been ported onto platforms including the Xbox 360, Apple TV and the Nintendo Wii. Xbox Kinect owners can even scroll through movies with their hands like Tom Cruise in Minority Report.
Netflix can also learn what you like – in a similar way to Virgin Media’s TiVo – and give you personalised recommendations. The best part, though, is the price tag. At just £5.99 a month (for unlimited access – Hastings says multiple pricing options would dilute its offering), it is astonishingly cheap.
He says Netflix has hit the UK at an ideal time, with demand for online video surging despite the relatively consistent popularity of broadcast TV.
Services like BBC iPlayer and 4oD have whetted the public’s appetite for online video and YouView, the collaboration between firms including BT, the BBC and ITV, is also preparing for its long-awaited launch.
Since its sale to Amazon, LoveFilm has also stepped up a gear, penning deals with the BBC and ITV for shows including Doctor Who, Prime Suspect and Planet Earth. Hastings, though, isn’t worried: “We’ll compete a little with LoveFilm,” he says, “but mostly it will be the two of us competing with Sky”.
With the TV market evolving at a dizzying rate, 2012 could be the year Sky finally sees a real challenge to its dominance.
On the future of TV
“Online is going to replace broadcast in the same way the mobile phone has replaced the land line. All the growth will be in the mobile side of things rather than broadcast.”
On competing with Sky
“Sky hasn’t had much competition for a long time – we’re going to help provide that. What we see in the UK is a very developed market with a lot of demand.”
CV | REED HASTINGS
Graduated from Bowdoin College with a BA, having won plaudits in its mathematics department
Gained a master's degree in computer science from Stanford University
Served as chief executive, president and director of Pure Software, which he founded. Pure eventually merged with Atria, combining their trouble-shooting software portfolio
Co-founded Netflix with Marc Randolph. Hastings still runs the video streaming website, which has expanded into 47 territories
Hastings is on the board of technology giants including Facebook and Microsoft
● Other interests
Hastings is an educational activist, championing reform of the education system. He has served as President of the California State Board of Education