Netflix is spending billions as television evolves from a linear delivery model to a world of competing apps and new screens. CEO Reed Hastings released an 11-page paper this week on the company’s investor relations site that outlines ambitious plans for the future. While we’ve heard some of Hastings’ points in the past, the paper offers new insights regarding the transition from traditional linear TV to a new era of Internet-delivered on-demand content.

“Hastings said that Netflix is now spending over $2 billion a year on the licensing and creation of content,” reports paidContent. “The company is spending another $350 million a year on improving its service and apps, including improvements to the streaming quality and customer service. And it is spending over $450 million per year on marketing in all of its markets around the world.”

“Over the coming decades and across the world, Internet TV will replace linear TV,” suggests the report. “Apps will replace channels, remote controls will disappear, and screens will proliferate. As Internet TV grows from millions to billions, Netflix, HBO, and ESPN are leading the way.”

“The linear TV channel model is ripe for replacement,” argues Hastings, noting that consumers dislike DVRs and cable VOD services. We should expect technical advances such as 4K streaming and personalized advertising to speed the transition to app-based on-demand programming and TV Everywhere.

He says that eventually, linear TV will have less viewers and “the spectrum it now uses on cable and fiber will be reallocated to expanding data transmission. Satellite TV subscribers will be fewer, and mostly be in places where high-speed Internet (cable or fiber) is not available. The importance of high-speed Internet will increase.”

Hastings explains that Netflix does not intend to compete with cable, but hopes to become a successful channel (or app): “We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish.”

Data is guiding what content Netflix decides to license: “We might pay, for example, $200,000 for a 4 year exclusive subscription video-on-demand (SVOD) license for a given title. At the time of renewal, we evaluate how much the title has been viewed as well as member rating feedback to determine how much we are willing to pay. How many similar titles we have is also a consideration.”

Hastings views HBO as Netflix’s biggest competitor, but notes that the competition could also improve HBO in the process: “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. 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.”

Hastings recognizes that Internet TV is a small percentage of overall viewing today, but notes its growth, and offers ten reasons why it will continue to expand each year:
1) “The Internet will get faster, more reliable and more available.”
2) “Smart TV sales will increase and eventually every TV will have Wi-Fi and apps.”
3) “Smart TV adapters (Roku, AppleTV, etc.) will get less expensive and better.”
4) “Tablet and smartphone viewing will increase.”
5) “Tablets and smartphones will be used as touch interfaces for Internet TV.”
6) “Internet TV apps will rapidly improve through competition and frequent updates.”
7) “Streaming 4K video will happen long before linear TV supports 4K video.”
8) “Internet video advertising will be personalized and relevant.”
9) “TV Everywhere will provide a smooth economic transition for existing networks.”
10) “New entrants like Netflix are innovating rapidly.”

Click here to access the full report. For additional information, you can access the Netflix Investor Relations site.