#paleyic2011

September 15, 2011 |  5:37 pm

Netflix's controversial new pricing strategy that raised monthly fees 60% for some people is a way for customers to "vote with their checkbooks," the company's chief content officer said at a media conference Thursday.

Previously, Netflix charged $8 for online video streaming and $10 or more for streaming along with DVDs through the mail. The streaming-only price stayed constant, but Netflix now charges an additional $8 or more to get DVDs in the mail.

"The supplement you paid didn't cover the cost of DVDs by mail, so we said let customers vote by their checkbook," Ted Sarandos told the crowd at the Paley Center for Media's International Council conference in Beverly Hills Thursday. "We gave them an opportunity not to pay for streaming if they don't want it or for DVDs if they don't want it. It was a sexy headline to say there's a 60% price increase, but that was only for people who want both."

At least some people have been voting with their checkbooks, as Netflix Chief Executive Reed Hastings told investors in a letter Thursday that the company would lose 600,000 subscribers during the quarter. It had predicted it would gain about 400,000.

The news sent Netflix stock tumbling 19% as investors feared it signaled an end to Netflix's skyrocketing growth over the last few years.

Sarandos acknowledged the company had miscalculated how subscribers would react to the pricing changes but said it would be less of a problem going forward.

"Being able to precisely forecast and predict the behavior of that many people to a fairly radical change is something we'll get better at with time," he said.

He also downplayed the pending loss of Sony Pictures and Walt Disney Pictures movies when the company's distribution deal with pay cable channel Starz ends in February, noting that television programs are now more popular than movies for users of the company's streaming service.

"Television, even the season after it airs, feels more fresh than movies that have already been in theaters and on DVD," he stated.

Serialized television dramas are particularly popular on Netflix, which is why the company is investing huge amounts of money to acquire such content. It recently bought first-run reruns of "Mad Men" for between $750,000 and $900,000 per episode, the same type of price typically paid by cable networks for reruns.

Its first original program, "House of Cards," is also a serialized drama and Sarandos said the company is exploring more opportunities in the genre. He noted that it was particularly important because many serialized dramas are made by pay cable networks that consider Netflix a competitor.

"A lot of serialized shows end up on HBO, Showtime and Starz, three guys who don't necessarily want to sell to me," he said. "So we have to develop our own muscle."

Wall Street has at times been wary of CBS Corp. for its heavy reliance on advertising revenue compared to other media giants that also have stakes in subscription businesses such as cable television.

However, thanks to strong sales of its content both abroad and to new platforms, including Netflix and Amazon, and retransmission consent fees the network is now getting from distributors in the United States, CBS' revenue is starting to diversify.

Speaking at the Paley Center for Media's International Council conference, CBS Chief Executive Leslie Moonves said advertising accounts for about 64% of the company's revenue, down 8% from just a few years ago. He predicted that in five years, ad dollars will account for less than 60% of total revenue for CBS.

"We're less dependent on that and we're in good shape," Moonves said.

Moonves spent much of his discussion talking about the need for a better measurement for online viewing. Until such viewing is tracked better and advertising dollars reflect that, CBS will continue to focus on getting people to watch shows on the network first.

"We need to get an eyeball measured very accurately ... then we will be agnostic about where you watch your show," he said.

Moonves also told an amusing story about NBCUniversal Chief Executive Steve Burke. A few years ago, when Burke was still at NBCU parent company Comcast Corp., he and Moonves clashed at the Allen & Co. conference over fees CBS wanted Comcast to pay the network for their content.

"He lost his temper at me," Moonves said, adding that Burke told him, "We are never going to pay you a nickel for retrans."

Now, as head of NBC, which Comcast took over earlier this year, Burke is a believer in retransmission consent fees. On Wednesday, Burke told analysts he thought NBC would generate hundreds of millions in such fees in the coming years.

Nicholas Carlson | Sep. 15, 2011, 10:41 AM | 1,614 | 6

IAC chairman Barry Diller thinks AOL CEO Tim Armstrong blew it handling the whole Michael Arrington-is-launching-a-VC-fund saga.

During a Paley Center keynote Diller said TechCrunch "is not a journalistic enterprise" and that it has never acted like one. 

He says it has always been a blog powered by Arrington's "voice" – a voice that is "biased, mean, and capable of saying anything and capable of playing 100 different games."

AOL knew this when it bought TechCrunch, and because of that, Diller says that when AOL Huffington Post president Arianna Huffington complained to AOL CEO Tim Armstrong about conflicts of interest after Arrington launched a venture capital fund, Armstrong should have told her: "shut up and go back to your room."

Instead, he let Huffington fire Arrington, who is now planning to launch a new "personal" blog.

Diller laughed at the situation.

He told keynote intereviewer Jason Hirschhorn: "So now [Arrington is] gone. And now they own this thing which has no voice."

"Congratulations! What a good piece of business!"

You can watch Diller's remarks starting thirty-two minutes into this clip:

By DAVID LIEBERMAN, Executive Editor | Friday September 16, 2011 @ 1:25pm EDT