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Netflix to focus on acquiring TV content

Netflix is adding more TV content to its catalog as it faces more hurdles in acquiring rights to high-quality films produced by movie studios.

NEW YORK--As movie content gets more expensive and harder to come by, Internet streaming service Netflix is turning its attention to acquiring more TV content for its streaming service.

In the company's first public appearance since it announced recently that it will split its DVD and streaming video businesses into two different brands, Netflix Chief Financial Officer David Wells today discussed with investors and analysts at a Goldman Sachs conference here the company's plans for adding more content to its service.

One key point, he made during the talk was that TV content will increasingly play a bigger role in the company's offering instead of feature-length films. This comes as little surprise given the difficulty that Netflix has been having in obtaining movie content. Earlier this month, Netflix announced that Starz had decided to stop negotiations to renew its distribution contract with Netflix for its movie content. When asked about the negotiations with Starz, Wells declined to provide a specific comment. But he said that Starz valued its movie content more than Netflix did. And he intimated that Netflix feels it can get more bang for its buck by using the money it was paying Starz for its movie catalog to acquire rights to more TV content.

In addition to the evolving economics of the streaming business, Wells said the decision to go after more TV content is also being driven by user behavior. Currently, about 60 percent of the video streams viewed by Netflix members is for TV programming. And Wells said that as more deals are made with TV distributors, that an even higher percentage of content streamed will likely come from TV.

"There are tons of orphan shows that never got a chance to find an audience while they were on on the air," he said. Specifically, he mentioned the Fox show "Arrested Development," which only ran three seasons before getting canceled. He said the series is hugely popular among Netflix users.

Netflix is already moving in the direction of TV. Also today, Netflix announced a deal with cable network Discovery to stream some of its content. As part of the deal, Netflix streaming customers will get access to select shows from certain Discovery networks that are 18 months or older. The deal is only for two years, which, according to Discovery CEO David Zaslav, who spoke earlier at the Goldman Sachs conference, will give the cable channel time to assess whether the deal is worth it.

Analysts have grown wary of Netflix's strategy changes. And some believe Netflix is in danger of losing a big chunk of its customers as the company rejiggers its business. According to a survey by research firm Frank N. Magid Associates, the company could lose as much as a third of its current subscriber base as a result of how it handled a price increase announced in July for its streaming service and DVDs by mail, and a plan announced recently to split its DVD-by-mail business and streaming.

Netflix CEO Reed Hastings has apologized publicly for the bungling of the price increase. And Wells tried to explain the rationale for rebranding the DVD business, which makes higher margins for the company but ultimately will see little growth in the future.

He said the company has already seen declines in its DVD business, while the streaming service is booming.

"Our feeling is that the DVD business is mature," he said. "So that means there isn't as much growth there."

By contrast he said since the price increase was introduced more people have been signing up for the streaming-only service. And he said customers with both streaming and DVD subscriptions are deriving more value from the streaming service.

"There are too many examples in history where companies did not move fast enough to rebrand when the market shifts," he said.

The company has acknowledged it's already lost some customers to the pricing changes. But Wells said that the company is not planning to woo those customers back with service discounts, because he doesn't think it will win back those customers.

"At this point, we are not considering any price cuts," he said. "Offering a discount for 3 months or 6 months is just kicking the can down the road. We focus on continuing to add more great content to repair trust with consumers."