Netflix chief: Trust us, our originals are hits

Despite a slowdown in U.S. streaming subscriber growth from recent quarters, Netflix CEO Reed Hastings says the company's original programs are doing well or else Netflix wouldn't be making more of them.

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Joan E. Solsman
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Netflix CEO Reed Hastings joined an unusual live-streamed chat moderated by an analyst and CNBC journalist instead of the traditional post-earnings conference call. Screenshot by Joan E. Solsman/CNET

Reed Hastings, the chief executive of Netflix, says the company has a perfect score when it comes to its original content. You can tell because they're not stopping.

"A hit is something we want to renew, and ... we want to renew because the economics for us are good," Reed Hastings said about the original series that the company has picked up for second season, during an online discussion of Netflix results streamed through Google Hangouts.

Though he and other Netflix executives continued to withhold solid data about how many people are watching and joining of shows because like "House of Cards" and "Arrested Development," they provided some peeks into how originals are developing an audience and how Netflix is developing its own originals strategy.

Earlier Monday, Netflix said its second-quarter profit rocketed higher, helped by an original content strategy. But its domestic streaming subscriber growth wasn't nearly as stratospheric. Its gains of U.S. streaming customers slowed from previous periods, and shares fell 4 percent in after-hours trading.

Netflix said that one of its originals released during the period -- "Arrested Development" -- produced "a small but noticeable bump in membership," when it came out.

But the executives continued to withhold outright audience or viewership numbers. Without giving specifics, Ted Sarandos -- Netflix's head of content -- said every one of the original shows is drawing "TV-size audience numbers" and the best sign that they've been hits is the fact Netflix has renewed second seasons of all the shows it has premiered itself.

The company has ordered sophomore seasons for all the shows with their freshman season premiering on Netflix. It has said it would be "delighted" to make another season of "Arrested Development."

But Sarandos, whom Hastings referred to as "God's gift to programming," did reveal a couple illuminating facts about the original programs. Netflix's latest, "Orange Is the New Black," drew as much viewing in the first week after it debuted as any other series, and both the viewing audience and total hours in the first seven days after every premiere have grown sequentially with each series.

That means the Gothic horror-thriller "Hemlock Grove" had a bigger audience in its first week on Netflix than "House of Cards" did.

Original content is key to the future Netflix envisions for itself as an online television provider to surpass HBO. Its originals recently garnered Emmy awards in major categories, validating their quality is on the same playing field as a premium cable channel like HBO, and Netflix domestic subscriber number this year surpassed those of HBO, according to estimates from SLN Kagan. But the company still has a long way to go before really rivaling that vanguard of premium television, something executives freely acknowledge.

House of Cards
The cast of "House of Cards." Netflix

Unlike HBO, Netflix doesn't own own the content it's helping to produce, though that would be a natural path for Netflix to take in the long term. And Netflix international reach is trifling compared to HBO's. Earlier this year, Time Warner Chief Executive Jeff Bewkes said HBO has 114 million global subscribers. Netflix's worldwide subscribers were more than 37 million, it said Monday.

But international is where Netflix is most deeply investing to grow.

"We're choosing a business strategy which has us put essentially all of our domestic profits into international expansion. And we think that's the right move but it definitely takes a strong stomach on the part of investors," said Hastings.

Such heavy investment comes as the price to acquire content is set to rise, as online competitors put more investment into vying for the same shows and movies as Netflix is. Hulu's owners earlier this month committed to infuse the site with $750 million rather than sell it, and Amazon is committing hundreds of millions to content development and acquisition.

But even with the prospect of content prices getting more competitive and profits being poured over to new markets, U.S. subscribers can relax for the time being about Netflix raising the price of its service.

After a vocal backlash to a pricing change in 2011 when Netflix eliminated its $9.99 DVD-plus-streaming option for two separate plans at $7.99 each -- thus pumping up the price by almost $6 for anyone who wants both -- Hastings says $7.99 will be here for the next year.

"Once you've picked a price, there's an incredible value in consumer stability," he said.