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Netflix In The Spotlight

Netflix Inc (NFLX) the largest online DVD rental company posted a higher quarterly profit, helped by subscriber growth. Should you buy the stock?

Reed Hastings, Netflix CEO joins the panel for this conversation. Following are excerpts

What’s the story with earnings?

“We made a big move in July when we cut our price,” says Hastings. “We were pretty aggressive and provided consumers with more value.”

What do you mean?

“The same great service at lower prices really gave some juice to our growth which then helped us on the profit side," he explains. “We have over 7 million subscribers at the end of the quarter and $15 million in profit.”

Is this coming at Blockbuster’s expense?

“A little bit might be," says Hastings. "But they’re focusing on stores and they’re getting a great opportunity as Movie Gallery closes.”

How are you dealing with the transition to DVR and digital download?

“We offer online video right from the Netflix website,” Hastings replies. “You can click on a movie and you can watch it right there right on your lap top.”

How did you keep your subscriber acquisition costs low?

“Mostly by doing the price cut and providing a better deal,” Hastings says. “It’s the same amount of marketing as in prior quarters, but it was more efficient.”

How much momentum is sustainable?

“We raised our guidance for Q4 so that says it's sustainable at least through Q4 and we’ll look at 2008 in another quarter,” says Hastings.

What is your view on the transition to digital?

“We’re starting to see some real movement in online but so far DVD has stayed solid. It hasn’t shrunk,“ says Hastings. “DVD domestically is a $24 billion business and the studios love that part of the business. They’re trying to have online grow and not have DVD shrink.”

Is that plan viable?

“It’s viable for a while. It might not last a full 5 years. But the high def DVD could add a leg of growth,” answers Hastings.

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