Netflix discusses downloadable movies (NFLX)

Barry McCarthy, CFO of online movie rental company Netflix (ticker: NFLX), presented at the Morgan Stanley Small Cap Conference on June 15th. (That means that Morgan Stanley hosted small cap companies, not that Morgan Stanley is becoming a small cap stock...) Here's his argument why DVD rentals will not be displaced by movie downloading:

The studios make all of their money selling DVDs and almost none of their money theatrically. And they make practically no money at all on pay-per-view...

So, if you're a studio and you're trying to decide whether you're going to license content for electronic downloading, the decision is pretty simple. Two bucks electronic downloading, 18 bucks wholesale. Before you're going to license content for electronic downloading, you have believe that the market at two bucks of incremental revenue is so elastic that it's going to overwhelm the revenues you already generate from DVD and grow your business.

And no CEO is going to make that bet, which is why there's virtually no content licensable, on a subscription basis, for downloading. And that's the reason downloading is not the technology of the 21st century. Technology can do it. There will be a box in your home, that you can afford, that's going to drive that technology to the TV set. And there will be consumer demand for it. But there will not be content for it; not in abundance. And so that concept, I think, is DOA.

What is on the horizon is HDVD.

(Quotes are from the CCBN StreetEvents transcript.)

NFLX chart below.

Not subscribed to The Internet Stock Blog? You can get updated headlines for free by adding The Internet Stock Blog to your My Yahoo page. Just log into your My Yahoo
page, then go to The Internet Stock Blog and click on the "+ My Yahoo"
button top right. You can do the same for other sites, such as The China Stock Blog, ETF Investor and Seeking Alpha.