The Reed Hastings Interview That Never Was

Sep.27.11 | About: Netflix, Inc. (NFLX)

Eight days ago, when things at Netflix (NASDAQ:NFLX) blew up big for the third or fourth time this year, I sent CEO Reed Hastings an email. I was a little cocky, but mostly respectful as I asked him for an interview. As he was presumably answering comments from angry customers at the Netflix blog through his Facebook account, Hastings forwarded my email to the company's VP of Corporate Communications, Steve Swasey.

I have not dealt much with Swasey, but as gatekeepers go, he seems like a pretty good one. He's direct, to the point and gives you every reason to believe that he's seriously considering your request. And, offering the benefit of the doubt, I have no choice but to suspend my cynicism and believe that he -- and Hastings -- did just that.

In any event, after a little emailing back and forth, Swasey responded Monday with a "not now" as he thanked me for my "understanding." While it would have been nice to score an interview with Hastings, I was not holding my breath.

First, why would Hastings "reward" one of his company's biggest critics with an interview? But, even more so, why would he want to have to answer questions that are more difficult than the softballs he typically gets tossed his way? Half of the reason why I wanted to have a one-on-one with Hastings, even if only over email, was to ask the follow-up questions Kara Swisher failed to ask the last time somebody had Hastings in front of them, live and uncensored, for an extended period.

Here are the questions I sent over that Hastings refused to answer:

1. You are on record as saying, in the Q2 letter to shareholders, that Netflix will not sell the DVD unit, now known as Qwikster. Will you go as far as saying that this option will never be on the table? What would have to happen to make selling Qwikster something you would consider?

2. In the past, you have referred to a "virtuous cycle," whereby Netflix achieves rapid subscriber growth, which allows it to fund the costs of streaming content, which fuels even more rapid subscriber growth, which allows the company to license even more digital content.

In light of the subscriber shakeout from the price increase -- the impacts of which have not yet fully played themselves out, particularly in light of the Qwikster news -- is this cycle broken? To that end, how will Netflix cover the cost of not only the billions it's already on the hook for ($2.4B, as of the last 10-Q), but the cost of more digital content, not to mention the expenses associated with an aggressive international expansion? If subscriber growth slows, stalls or reverses course, where does the cash come from?

3. In the Q2 letter to shareholders, you -- and CFO David Wells -- wrote that Netflix "could" generate $1 billion in "global revenue [in Q4]... driven by strong U.S. performance." While not quite a prediction, it's pretty close. I called it either a bold move that would make you look like a genius or the biggest mistake of your career. In light of recent events, do you still believe the company can achieve $1 billion in revenue in Q4?

4. You've probably read what Martin Peers had to say in the Wall Street Journal about the Netflix stock buyback program in relation to the company's aggressive employee stock option plan. Here's what one analyst, Tony Wible of Janney Montgomery, had to say about it:

Insiders have sold $67.6 million of stock over the past six months with much of this funded by options that were exercised at a $1.50 per share. The CEO has sold $1.0 to $1.5 million of stock on almost a weekly basis (total of $32 million) and continues to not own any direct shares. The Chief Product Officer, Chief Content Office, Chief Marketing Officer, Chief Talent Officer, and various Directors have also sold. We believe this activity is tied to NFLX’s unique compensation policy that minimizes the cost of options on the income statement but essentially allows NFLX to fund some compensation through the balance sheet at the expense of shareholders.

Looking back, and in light of Wible's and Peers's analysis, do you wish you would have handled these two areas of the business -- employee options and the buybacks -- differently?

5. In a recent All Things D interview [mentioned above], Kara Swisher asked you about international expansion. Here's something you said in response: "It takes us one to three years to get a new country profitable for us. Canada [will] be profitable within a year, which is very fast." I was a bit puzzled by that statement. What are you basing that experience on, given the fact that Netflix has not existed in any markets other than the U.S. for that long?

6. When the Sony (NYSE:SNE) content got pulled, Netflix referred to it as a "temporary renewal" on the company blog. Was this another mistake? Exactly what happened there and did it have anything to do with the subsequent end to contract negotiations with Starz (LSTZA)?

7. Lots of people want to know if you feel bad for possibly influencing Whitney Tilson to cover his short of NFLX. Do you?

8. I have used up a lot of space on Seeking Alpha making a pretty bearish case against Netflix. Because neither of us exist in a vacuum and for the sake of perspective, I wanted to afford you some space to talk about something I know you are a big part of. You sit on the board of the California Charter Schools Association (CCSA) and support charter schools throughout the state. Why and how did you get involved with the charter movement?

I even threw in a couple of softballs for good measure.

I think it's important for investors to (A) know about this turn of events and (B) see the types of questions the Netflix CEO refuses to answer, directly, and in succession. Compare my slate of questions to the ones others have been able to ask Hastings or CFO David Wells live -- not on the company's Is It Live or Is It Memorex quarterly conference calls -- and the blurbs that make it to publications such as The Wall Street Journal from time to time.

Because of the email format of my would-be interview, I thought a chance existed that it might happen. Hastings had the opportunity to craft solid and targeted answers to direct questions that many investors -- and even Netflix customers -- want answers to. But Hastings refused. Maybe he will turn up elsewhere answering the same questions from a better-known interviewer with a better track record of grilling Silicon Valley CEOs.

Or, maybe as Netflix's apparent disagreement with the SEC, its slow response to successful shareholder proposals, and Hastings' pseudo apology help illustrate, the company has little desire to address key investor concerns, openly and genuinely, in a public forum.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.