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Reed Hastings

Earlier today, The New York Post reported that was weighing the possibility of creating a standalone video subscription service, one that would directly rival Netflix.

Well, as it turns out, Netflix also thinks that Amazon will be coming on to its turf. In a letter to shareholders today, Netflix CEO Reed Hastings cited competition from Amazon and Hulu. He wote:

“We expect Amazon to continue to offer their video service as a free extra with Prime domestically but also to brand their video subscription offering as a standalone service at a price less than ours,” wrote Hastings. “Both Amazon and Hulu Plus’s content is a fraction of our content, and we believe their respective total viewing hours are each less than 10 percent of ours.”

Hastings also pointed out that Hulu Plus includes commercials at the $7.99 price point, whereas Netflix is commercial free.

In a follow-up during the company’s earnings call Wednesday, Hastings was asked specifically about competition with Amazon and Hulu for streaming rights to video content.

“There’s very little market just for streaming rights,” said Hastings, adding that Hulu Plus and Amazon are “quite small bidders compared to the cable networks that we bid against.”

Hastings later added that he’s not sure about Amazon’s content acquisition strategy.

Netflix shares regained some ground on Wednesday after the earnings report, jumping more than 12 percent in after hours trading. They had been pummeled after the Qwikster fiasco and a price hike that angered many longtime customers of the service.

The company reported revenue of $876 million for the quarter, ahead of the $857 million that Wall Street anticipated and up from the $822 million in the previous quarter, according to All Things D. Netflix says it now has 21.6 million streaming customers in the U.S and 1.86 million overseas.

The domestic DVD business saw subscribers decline from 13.9 million to 11.1 million.

In the conference call today, Hastings dismissed the idea of expanding into video games and offering a-la-carte purchase of movies or TV shows.

“I don’t think there’s a lot of brand strength in being, to use the quote, ‘everything for everyone.’  You gain profit and brand strength from being something important and precise. And we believe that unlimited for a low fee in the U.S., $7.99 per month, is the core of our brand proposition, and that if we were to add pay-per-view … it would confuse the brand. There are a number of providers — Walmart’s Vudu, Apple’s iTunes, Amazon Unbox … CinemaNow, Blockbuster — the list just goes on and on of providers who already offer pay-per-view. And we have now way to do it better, that we know of. So, what we are focused on is working with all of those partners and keeping the clarity of our brand. So, our strategy is to — you can think of it like Dolby Digital — be in every platform and get along with everyone. And we believe that there’s a large enough market, at an $8 subscription, to have us grow very large. So, to some degree it is a niche strategy. But it is a very large niche, that we think we can lead.”

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