Movie Marketing & PR: The Netflix Interview

Netflix, the online movie rental Hercules, is one of those companies, that gets entrepreneurs worldwide slapping themselves and wishing they had thought of the grandiose idea for such a company. A decade-plus running, while many start-ups that begun in the late 1990s and succumbed to the Dot ComWeb 1.0 Bust, Netflix continues to gather strength.

I had the opportunity to speak to none other than Steve Swasey, the in-house Rasputin and media blaze extinguisher at Netflix.

Feel free to eavesdrop on our conversation.

Movie Marketing & PR: It seems to a lot of people are saying that Netflix is immune to the recession.
Netflix: I don’t think any company is. But Netflix has been in a very good position. Netflix has surpassed more than 10 million members and it’s from a position of having great convenience, selection and value for the service. You’ve got more than 100,000 choices of movies and TV episodes on DVD and more than 12,000 movies online, available to be watched instantly. And that gives you a great opportunity to enjoy movies at a very low price—$9.99 a month or $8.99 a month for TV episodes. It’s great selection, unlimited viewing and really great convenience.

MMktPr: So, Netflix has reached a membership of about 10 million subscribers. Can you basically give us an overview of how the company came to be such a phenomenon?

Netflix: Netflix changed the way Americans rent movies by providing unlimited DVD rental, no late fees, postage paid both ways, delivered directly to your home. You don’t even have to go to the video store. Prior to Netflix, the only way to rent movies was to go through the inconvenience of driving to a store, having somewhat of a limited selection, pretty crummy service and punitive late fees.

And Netflix changed all that. In 1999, Netflix came out with the subscription service where the movies were available—just log on to Netflix.com and order movies and they’re delivered right to you through the United States Postal Service. You never had to leave home. And of course that’s grown over time.

We’ve got more than 100,000 titles now on DVD and we’ve expanded the business to be able to stream to you. There’s unlimited streaming on your PC or on your Intel-enabled Macintosh, or on a device that gets to the TV with Roku or the Microsoft Xbox 360 or a couple of Blu-ray players by LG Electronics and Samsung or the TiVo. Those are all devices that get Netflix movies delivered instantly to you on the TV, so all of this at a low monthly subscription and there’s no real way to return movies.

MMktPr: The latest development at Netflix is the Internet streaming operations.

Netflix: Streaming is an expansion of the Netflix service. One low monthly subscription for both DVD delivered by mail and streaming.

And streaming came up two years ago, [as of] last month; in January 2007 Netflix started streaming movies instantly on the PC and then made it available on TV in 2008, with one of the partner devices Roku, which I just mentioned. It came out in May 2008. It’s a beautiful little box, about the size of a paperback novel—$99—it sits near a stand next to your TV, plugs into the TV, plugs in the electrical outlet. It’s wireless or connects to the Internet via NEES and cable and streams movies instantly of course. And of course, there’s the Xbox 360 which came out July 2008 and started shipping in November. Both the LGV 300 and Samsung BD-P2515 2500 Blu-ray Disc Player came out in October [of] last year. And TV now started to stream on its models last year, late—the fourth quarter.

So 2008 was the year the networks got to PD streaming instantly and we continually expand the partners we’re working with. We announced this year at the Consumer Electronics show that the networks will be streaming directly into the TV, by LG Electronics and Vizio, another new partner. They’ll be steaming movies directly from Netflix to the TV.

MMktPr: In the future, are you going to eventually abandon the mailing-in model?

Netflix: DVDs will be around for a long time. Netflix will use DVD rental—and Netflix [DVD mailing rental] will grow for at least 5 more years. And even after the peak, whenever that is—there’ll still going to be people wanting to watch movies on DVD. DVD is a very, very good format, and it’ll be around for a long time. People will be watching movies on DVD for another 10-15 years—at least—if not more. If you think about it, VHS tapes still are clinging to their last breath of life after 30 years. The DVD format will be around for a long time. But also, the streaming model is coming out. People are starting to adapt to that as well. So we’re going to be in a bundle service—with both DVD and streaming for quite some time. Ultimately, in the future it will be delivered over the Internet, but that’s still many, many years away.

MMktPr: So basically, you don’t think DVDs are going to be the VHS of yesteryear?

Netflix: The growth of DVD rental will be for at least another 5 years, ten more years even.
We haven’t seen the peak. We have been nowhere near the peak or close to DVD rental growth.

MMktPr: Last year, Netflix suffered an online blackout. It was for a few hours, but the one in ‘07 was for much longer. Are you guys taking some steps to make sure this doesn’t happen again?
Netflix: Well, of course. The service is the Number One-rated website across the ecommerce [sector] for customer satisfaction [by the The American Customer Satisfaction Index], and Consumer Reports just this month [February] named Netflix as the “Best Way to Rent Movies Anywhere”, including all the big stores and online services and we do that with the goal of absolute customer satisfaction. So we do take every step we can to assure consistent and prompt delivery.

We deliver more than 2 million DVDs on a typical day. We ship more than 2 million DVDs on a typical day. More than 97% of Netflix networks see their DVDs the next day. The outage that you mentioned from last August—I think it was—was an anomaly.

We missed an afternoon of shipping and then we had two half days, so we had about two days in total where we didn’t ship for a period of about a week. The impetus was we fixed the problem. It hasn’t re-occurred. In that time, we shipped 99% accuracy over [the course of] ten years.

That was an unfortunate event, over two and a half days but Netflix did the right thing and proactively and voluntarily credited all the members whose discs were delayed. They got a credit, which many customers didn’t even want. They basically didn’t realize their discs were late. They didn’t mind. They trust Netflix and they like Netflix so much.

It’s not frequent that we have a problem and when we do, we fix it and folks are very understanding and forgiving.

MMktPr: One of the many things that some observers have said about Netflix is that the company is kinda secretive and really guarded.

Netflix: I’ve never heard that about Netflix. Netflix is very open and transparent. We got a lovely website. More than 95% of Netflix members recommend the service to friends and more than 80% join in part because of a personal recommendation from a friend.

So it’s got tremendous consumer loyalty and of course as with any business, we have proprietary properties, but the company is very transparent. It’s a publicly traded company; all of our earnings are publicly recorded and full disclosure on any material information. I don’t know who’s saying that—if anybody—about Netflix.

MMktPr: Since we’re speaking about transparency, I noticed that—

Netflix: Let me add something else to that point. We have open API. And Mashery credited and lauded Netflix for the best open API launch of any of these companies out there that are opening their API. We have a prize that’s out; it’s been out for 2 years now. The Netflix prize is for an invitation to computer scientists around the world to develop an algorithm that would beat the Netflix algorithms for recommendations, and that’s going to be a million dollars awarded to some computer scientist or a team of computer scientists. We’ve already awarded two $50,000 progress prizes for the Netflix prize for people who came close.

So Netflix as a company is all about openness and customer service. I’m curious to know who’s saying—who’s using those words about Netflix. I’d like to know the basis for this because it’s just not true.

MMktPr: Speaking of transparency, I noticed that Netflix has a blog. Would you say that the blog helps a lot with communicating with customers?
Netflix: Absolutely. In fact, I should’ve used that as another example of openness and transparency. We have people post on the blog. And there are other blogs that we contribute to. Hacking Netflix is one. That’s an independent, autonomous blog by a guy name Mike Kaltschnee. We treat Mike with the same level of respect and openness as we treat reporters from the New York Times. This interview is testament to the fact that we use blogs as a very important communication vehicle. So we have the Netflix blog which is a very important to us in communicating with our members.

MMktPr: So what’s a typical day like for you as Netflix’s Director of Corporate Communications?

Netflix: Doing what I’m doing right now. Talking to reporters, bloggers and journalists about the terrific convenience, selection, and value you can get from Netflix. Sometimes I set the record straight when there’s a report out there that’s erroneous. Most of the times, it’s very favorable outreach to journalists who are writing stories about Netflix.

Netflix is very well-covered by the national media. It’s a company that gets lots of media attention because it’s such an amazing company. The company that revolutionizes the way Americans rent movies from ‘99 and it’s doing good in 2008 and 2009, so it’s a great company to talk about and that’s my job to talk about it with reporters.

MMktPr: What would you like to see in the next 4-5 years?
Netflix: Netflix will continue to add content. It will continue to add partners that enable us to reach customers faster and offer greater convenience, selection, and value. In the last two years, we’ve completely changed the business model and improved it. We’ve kept the DVD business model intact and at the same time we’ve added streaming functionalities at no additional cost to Netflix members. You can watch movies instantly on your PC and on your Mac at no cost—that’s included in your membership. And if you have one of the devices you can stream Netflix movies to partner devices to your TV. This is revolution; the second revolution by the company in 10 years.

MMktPr: The free trial—is there going to be a time when you guys are going to do away with that? Netflix: That’s a critical fact. It’s a well-established practice: a lot of people come to us just because they’re in the free trial. It’s ingrained.

MMktPr: What’s the ratio—how many people who sign up for the free trial actually end up signing for the service itself?
Netflix: We disclose the number of new members, but we don’t give out—I can’t give you a specific number of people who actually try out and don’t convert after two weeks. But it’s fair to say that the free trial is a key factor in growing Netflix business.

MMktPr: Recently, Netflix had a legal battle with Blockbuster. What has Netflix learned from that whole thing?
Netflix: Oh, we settled that. We settled out of court. Neither company comments about it. So it would not be appropriate for me to comment on it.

MMktPr: Are you planning on adding any new niches as far as selections are concerned?
Netflix: We’ll certainly add content over time. When we started subscription service in 1999, we had 3,970 titles; just under 4,000 titles available on DVD. Ten years later, we have 100,000 titles available on DVD. We started streaming directly to the PC in January of 2007. We were doing it with about 1700 titles. Today the average for streaming? We have more than 12,000 movies and TV episodes.

So we’ll continue to add content over time. That’s a key fact. More content, more genres, more movies, more of what people want to see. Of course, we’ll continue to add more technological features to make it more enjoyable—such as streaming to the TV, the PC and Mac.

Pics via Google Images

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