For the bogeyman, Reed Hastings doesn’t look all that scary.
Ever since Netflix Inc. made its debut in Canada 21/2 years ago, traditional broadcasters have used the streaming video site’s presence to justify a strategy of buying specialty channels and sports franchises in a bid to control content.
They’re doing this even though Netflix has a subscriber base in Canada that’s a fraction as large as cable and satellite companies, and has been beset by its share of missteps and controversies – including an ill-conceived (and later abandoned) restructuring plan in 2011 that helped drive the stock price from nearly $300 (U.S.) to $63.
Yet Canadian broadcasters warn that Netflix and similar unregulated online services will steal consumers away from the country’s cable and satellite operators, which are required to air Canadian content and also hand over a portion of their revenues to fund Canadian productions.
Twice in the past year, executives from BCE Inc. and Astral Media Inc. appeared in front of Canada’s broadcast regulator to suggest that the survival of their media divisions depended on their $3-billion merger being approved. (That the deal was given the green light on Thursday by the Canadian Radio-television and Telecommunications Commission suggests the regulator is acknowledging the challenge conventional broadcasters say is presented by so-called over-the-top content providers that don’t have to worry about the country’s broadcast regulations and can focus entirely on driving down costs.)
They don’t often mention Mr. Hastings by name. They don’t even like to mention his company’s name.
But they say Netflix is a major threat – and on this day, Mr. Hastings is in a 17th-floor suite at Toronto’s Ritz-Carlton hotel, individually meeting with a handful of journalists who have waited months for a few minutes with him.
He opens the door himself, dressed in a vaguely cowboyish shirt, a pair of jeans and a simple pair of brown shoes. Despite the dire warnings from Canadian executives, he doesn’t have horns.
And he must have left his pitchfork in Los Gatos, Calif., because the only thing he’s carrying around is a pot of coffee that he’s offering to me and the two media relations helpers who sit quietly on the couch and appear to take better notes than I do.
“You know what’s great?” he asks after a few minutes of small talk. “Sometimes it’s a new competitor like Netflix that gets the existing guys to wake up and do better.”
There are about 12 million Canadian households with traditional television subscriptions. And while the pace of growth has slowed to a crawl, the industry is still adding subscribers annually (unlike in the United States).
But cord cutting is definitely happening – subscribers are slowly making the move toward alternative delivery systems to gain access to their favourite programming.
An estimated two million Canadians have signed up for Netflix for $7.99 (Canadian) a month, and the company says the rate is accelerating as consumers become more comfortable with the technology needed to stream video into homes. (Worldwide, the service has 36 million users.)
Companies such as Vidéotron Ltée and Rogers Communications Inc. have tried to stop the migration by building similar services of their own. Netflix has anticipated the rise of competition, and has countered by producing its own exclusive programming it hopes will lure viewers and keep them watching once they are done binge-watching shows such as Arrested Development, Hemlock Grove and House of Cards.
“We don’t just want to license, we want to develop and build and look more like a television network,” said Mr. Hastings, whose company posted a $2.7-million profit in the last quarter. “We have to stay on our toes – it would be tragic for us to be Netscape and invent a model and then get run over by the big guys.”
His foray into production comes with some risk – House of Cards was well received, but critics have been lukewarm to Hemlock Grove and the resurrected Arrested Development (even if fans have given it high ratings).