Netflix comments on increased marketing spend (1Q05 conf call quotes)

Netflix CEO Reed Hastings provided lower than expected guidance for Q2 and the remainder of 2005 on his conference call, and the stock plunged in response. Here's his justification for increasing Netflix' spending on marketing and emphasising lower priced rental plans:

…I said competition was affecting our churn and subscriber acquisition costs. Now I want to tell you what we're doing about it. First, we're going to spend marketing dollars to replace the churn subs. Second, we're going to increase marketing spending on a per-subscriber basis…, and third, we're going to offer subscribers a choice of plans at sign up… we expect a GAAP net loss of $2.2-$7.2 million due to increased marketing spending, and we expect the business to return to profitability in Q3 and Q4 of this year.

…for how long will we be spending 17 to 20% of revenue on marketing? Because that's very high for an e-retailer or a retailer generally. Wal-mart, Best Buy, Amazon, Blockbuster, they're all at 1 to 3% of revenue on marketing. And as our brand becomes more established, as we settle into 20 and 30% secular growth rates, we should be able to make considerable progress in terms of getting our percent of revenue on marketing down... as that market stabilizes, we'll then see a return to substantial profitability for both of the players that you typically see in a large fast-growing long lasting two-firm market.

(Quotes are from the CCBN StreetEvents transcript.)