SAN FRANCISCO--Netflix is banking on the belief that streaming movies to people's living rooms is the future.
CEO Reed Hastings said during Netflix's investor day here that he expects the business of renting physical DVDs to peak within the next five years. However, Netflix representatives later said they forecast that DVDs will remain strong for at least a decade.
The company also plans to experiment with pricing, including both increases and decreases.
Hastings said that through streaming, Netflix could grow to 20 million subscribers worldwide. But the company cautioned that it will be some time before its streaming-movie service, which is offered free to consumers, will pay off big.
Some of the hurdles Netflix faces in Web delivery are competition from video-on-demand providers, as well as Internet services such as those from Apple and Amazon.com. The number of rival VOD players will likely grow, according to Netflix executives.
Netflix's streaming-video service will be frequently blocked from getting access to newly released films because the flicks might be locked up in exclusive agreements the studios have with pay channels such as HBO or other outlets.
It's important to note that Apple has cut deals that allows iTunes to rent movies from the top Hollywood studios without worrying about these exclusive deals. But it's early yet, and Netflix hopes that it can establish a foothold in the still-untested streaming-movie sector. To do this, Barry McCarthy, Netflix's chief financial officer, says the company is uniquely positioned to help movie enthusiasts transfer their rental dollars toward Web services.
It's going to be hard for "a free-standing service to compete until it has enough content," McCarthy told the crowd. The sector is in transition, and "Netflix is betting that during this time, we can establish ourselves as a leader in the space," he said.
Another interesting tidbit from Netflix's investor day: Blu-ray Discs are more fragile than standard DVDs, according to Andy Rendich, Netflix's vice president of operations. The next-generation movie discs are still a small part of Netflix's business, Rendich said, but so far, the "break rates" are higher.
He said the company is working with the disc makers to help make improvements.