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Netflix’s CEO Sees ‘Arms Race’ to Dominate Video Streaming

Netflix Viewing Seen Swelling Cable Bills
Time Warner Cable Inc. and U.S. pay-TV companies, weighing how to profit from surging Internet demand spurred by Netflix Inc. and Hulu, are on the verge of instituting new fees on Web-access customers who use the most. Photographer: Jin Lee/Bloomberg

Netflix Inc. Chief Executive Officer Reed Hastings said he sees an “arms race” to dominate Web-based TV viewing, with Time Warner Inc.’s HBO Go service his top competitor.

“The competitor we fear most is HBO Go,” Hastings said today at a UBS media conference in New York. “HBO is becoming more Netflix-like and we’re becoming more HBO-like. The two of us will compete for a very long time.”

Hastings downplayed the emergence of other competitors, such as Verizon Communications Inc. and Inc., saying rivals will have to spend $1 billion to $2 billion a year on content. New competitors also will have to get their offerings on more devices in the home, particularly so-called smart TVs with built-in Web connections, he said.

Half of home-video viewing will come through the Internet as soon as 2016, aided by expanding fiber-optic networks that can carry the data and more Web-enabled TVs, Hastings said.

“The industry is very motivated around this concept of smart TVs,” Hastings said.

Los Gatos, California-based Netflix, which offers subscriptions for video-streaming and DVDs by mail, fell 2.8 percent to $68.14 at 4 p.m. New York time. The stock has lost 61 percent this year.

Hastings, 51, also said Netflix sees no quick return to profitability after alienating customers with changes in pricing and subscription terms earlier this year.

Subscriber Losses

Netflix lost 800,000 U.S. subscribers in the third quarter, the company reported on Oct. 24. Hastings declined to comment on fourth-quarter subscriber trends, while predicting gains in 2012.

“We are very optimistic that we can put up very substantial growth next year,” Hastings said.

In response to a question, Hastings wouldn’t comment on whether he is interested in selling the company. Netflix’s market value has dropped to $3.77 billion from almost $16 billion in less than five months after the company increased prices and lost customers. Steve Swasey, a spokesman, said Netflix doesn’t discuss rumors and speculation.

The company spent most of last year fending off claims from content providers that its all-you-can-eat service devalued their offerings.

“Now it’s just pity” because of the company’s missteps, Hastings joked.

World on Hold

Hastings forecasts losses for 2012 because of costs to start service in the U.K. and Ireland. The company in October said free cash flow would lag behind net income for several quarters as it increased spending on content.

Netflix had $365.8 million in cash and short-term investments at the end of the third quarter, according to data compiled by Bloomberg. The company raised $400 million with the sale of stock and convertible notes last month.

Hastings has put further geographic expansion on hold while seeking to contain a subscriber revolt over a price increase and an aborted plan to split its streaming and DVD-by-mail businesses.

“We’re not putting a lot of time and energy” into the declining DVD business, Hastings said.

To keep users and restart growth, Netflix is adding to its streaming library. The company said on Nov. 18 it would offer new episodes of “Arrested Development,” a Fox comedy that was canceled in 2006 and is being resurrected for a limited run of television episodes and a movie. Netflix will have exclusive access to the new episodes beginning in 2013.

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