Netflix Chief Executive Reed Hastings posted an 11-page document on the company's website articulating his view of the future of television and Netflix's place in this evolution.
In short, traditional TV is toast.
"People love TV content and we watch over a billion hours a day of linear TV," Hastings wrote in a post Wednesday night. "But people don't love the linear TV experience where channels present programs at particular times on non-portable screens with complicated remote controls."
Over the coming decades, Hastings wrote, Internet TV will replace linear television. Applications will take the place of traditional channels. Remote controls will disappear, to be supplanted by tablets and smartphones with touch screens.
For the moment, Internet TV accounts for a small percentage of video viewing today. But that'll change, Hastings predicted, as Internet speeds continue to get faster and more reliable, the number of "smart TVs" -- those with Web connections -- proliferate, and a number of other factors reshape consumer behavior.
The major TV networks, including HBO and ESPN, are racing toward this future, with applications such as HBO Go and WatchESPN, which provide subscribers with on-demand access to programming on their computers and portable devices.
"Existing networks, such as ESPN and HBO, that offer amazing apps will get more viewing than in the past and be more valuable," Hastings wrote. "Existing networks that fail to develop first-class apps will lose viewing and revenue."
The cable industry-backed TV Everywhere initiative, which gives subscribers expanded access to the shows they pay for every month, will help ease this transition by preserving the existing business model that underwrites the cost of prime-time programming, Hastings wrote.
Hastings drew parallels between the evolution of the cellular phone -- from clunky, expensive bricks that were limited to voice transmission to today's ubiquitous communication devices -- and the mainstream adoption of Internet TV over the next 20 years.
"In addition to creating opportunity for linear networks, the emergence of Internet TV also enables new apps like Netflix, YouTube, MLB.tv and iTunes to build large-scale, direct-to-consumer services that are independent of the traditional (pay TV) bundle," Hastings wrote.
Hastings wrote that Netflix invests more than $2 billion a year licensing movies and TV shows and creating original content. The Internet allows Netflix to offer a wide selection of entertainment offerings, while its software quickly learns about a subscriber's tastes and makes personalized recommendations. The majority of Netflix's spending is on movies and prior seasons of television shows, though Reed talked about the company's high-profile embrace of original programming.
Based on its knowledge of subscriber viewing habits, and its experience licensing a broad range of content, Hastings noted, "we think we can do as good or better job than our linear TV peers in choosing projects and setting budgets." The investment in originals is expected to be less than 10% of the company's content spending.
And Netflix has an advantage over traditional TV networks when it comes to launching a show.
"They have to attract an audience for Sunday at 8 p.m.," Hatings wrote. "We can be much more flexible. Because we are not allocating scarce prime-time slots like linear TV does, a show that is taking a long time to find its audience is one we can keep nurturing."
Hastings laid out the competitive landscape, noting that the service competes with other forms of entertainment, including video games and sports, for subscribers' time. Meanwhile, rivals such as Amazon.com, Hulu and cable and broadcast networks, meanwhile, bid against Netflix for content.
Netflix's biggest competitor is HBO, Hastings noted, which competes with it for original projects and recently won long-term distribution deals from Universal and Fox.
"While we are passing HBO in domestic members in 2013, it will be several years before we are peers with them in terms of original programming, Emmy awards and international members," Hastings wrote. "It wouldn't be surprising to us if HBO does their best work and achieves their highest growth over the next decade, spurred on by the Netflix competition and the Internet TV opportunity."
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