Netflix headed to cable? CEO Hastings asks, 'Why not?'

editor's corner

Jim O'Neil

So, what's special about today? We'll, it's Feb. 29, Leap Year, that once-every-four-years event that is so, well, meaningless to everyone not born on Feb. 29.

Here's another event that happens today, also likely to be pretty much meaningless: Netflix's (Nasdaq: NFLX) three-and-a-half year agreement to stream Starz content--from Scarface to Toy Story 3--also comes to an end.

Netflix CEO Reed Hastings didn't appear to be worried about the contract's expiration yesterday when he spoke at a conference and suggested that Netflix could eventually become a pay-TV channel.

Hastings, during the Morgan Stanley Technology, Media & Telecom Conference in San Francisco, said he thinks the service, which often has been cast as competition to the industry and a lightning rod for cord cutters, will gradually evolve (devolve?) into just another content source. It'll be a supplement to cable's offerings, especially as it provides more original content.

"The more we do original content, the more it is going to be natural to have Discovery Channel, Netflix, watch ESPN, watch HBO," he said. "We're just another network."

Specifically, he said, one that is likely to compete with Time Warner's (NYSE: TWX) HBO, saying service providers "would like to have a competitor to HBO, and they would bid us off of HBO."

And, he said, while it's not likely to happen in the near term, "it's in the natural direction for us in the long term."

Of course, Netflix will have to survive the loss of that Starz content. That's not really a big deal, as the New York Times pointed out this week. Netflix has steadily been growing its catalog of television shows, which now make up more than half of all its viewing, and it's a major reason the service has been able to keep its streaming subscriber base, which now stands at 21.7 million.

And, as BTIG analyst Richard Greenfield said, the loss of the content is "not the catastrophic event that everyone thought it would be a year ago."

"The cocktail party conversation in the media world is, the content's terrible," Greenfield told the Times. "And yet the average subscriber is devouring over an hour a day, every single day. Obviously they don't think it's horrible."

On Tuesday, Hastings said content was getting harder to come by and more expensive, too. That's one reason, he said, Netflix would possibly look at partners moving forward.

"If we can harness some of their up-selling capabilities...and they're sharing some of their margin with is a logical path," he said.

Of course, he said, a partnership with another company also wouldn't be out of the question. Verizon (NYSE: VZ), for example, just tied the knot with Redbox on a joint venture.

"There's no reason it doesn't make sense for Netflix depending on the economics," Hastings said.

AT&T (NYSE: T), are you listening?--Jim