Netflix CFO downplays Blu-ray effect

DVDs to remain primary content format

By Danny King -- Video Business, 9/15/2008

SEPT. 15 | Netflix chief financial officer Barry McCarthy said today that Blu-ray adoption is unlikely to have a significant impact on the retailer’s sales in the near future. He said the company will continue to ship DVDs to its subscribers for as many as another 10 years.

He also said that Netflix was fortunate that its August shipment delay for more than two days occurred during a relatively slow rental period because of the Olympics. McCarthy added that demand for Netflix video-streaming would outpace competing services such as Amazon.com’s video-on-demand offering despite a smaller inventory of titles.

Netflix, which estimated in July that less than 10% of its subscribers order Blu-ray titles, will be little affected by Blu-ray demand until at least next year despite more high-definition disc players being released and a studio push for Blu-ray sales, McCarthy said at a Bank of America investor conference in San Francisco.

“I don’t anticipate a big impact” on Netflix sales, said McCarthy, who estimated that the Blu-ray player prices won’t fall below the $300 mark for at least a year. “Consumer adoption has been slow.”

McCarthy also said that as the company tries to build on its 8.4 million subscriber base by adding streaming services, DVD will remain the primary movie distribution device for at least another five years, because, unlike the DVD player, there is no single standard system for digital delivery. He also said that Netflix’s strategy of offering unlimited viewing of its packaged and digital titles will generate more demand than competing a la carte digital-rental services such as the VOD service Amazon launched earlier this month. That service offers about 40,000 titles, or more than triple Netflix’s digital titles.

“In early 1999, we were an a la carte business, and we were quickly going out of business,” said McCarthy. “The value of unlimited viewing trumps the broader selection of content in an a la carte world.”

Last month, Netflix, the largest movie-rental service via mail, delayed shipments to about 15% of its customers for more than two days because of technology issues, marking the second large shipping outage in five months.

“Fortunately for us, it did happen during the Olympics,” said McCarthy, who added that all effected subscribers were given credit for the days shipments were missed. “The effect on our brand could’ve been much worse.”