Facts Speak for Themselves: Netflix Is a Winner

Unless you’re an active or potential shareholder in Netflix, forget what the Wall Street analysts are carping about and look at the facts that are in the company’s first quarter financial report. They are impressive.

1. Its total number of subscribers, US and Canada, increased by three million, almost 70% over the past year, and now totals 23.6 million — 22.8 million in the US. Many are, of course, DVD swappers, not predominant streamers.

2. It has as many subscribers as Comcast, the world’s largest pay-TV service. Netflix is not a direct threat to the pay-TV services but it is to their premium channels like HBO and Showtime.

3. Netflix, as several pay-TV networks do, has commissioned a “made-for-Netflix“ show, its first. It’ll be based on the UK novel “House of Cards“ and will star Kevin Spacey. “This represents slightly greater creative risk than we’ve taken in the past, but we think it’s reasonable given the popularity of the original BBC show,“ Netflix said. “Ideally, we’ll license two or three similar, but smaller, deals so we can gain confidence that whatever results we achieve are repeatable,“ CEO Scott Hastings said.
3. More than 7% of Americans subscribe to Netflix. If each subscription is counted as a household, which it should, over 20% of all US households can now watch content from Netflix.

4. Quarterly profits increased to $60.2 million, up from $32 million a year ago.

5. Revenue rose 46% to $719 million.

6. Netflix expects subscriber growth to continue but at a lower percentage increase than in the past. It anticipates adding 1.3 million to 2.25 million subscribers in the second quarter, however, an increase compared to the 1 million it signed up during last year’s April-June period.

7. Having closed a deal recently with CBS, Netflix is the only OTT service to offer shows from all four broadcast networks. Hulu does not offer CBS shows.

8. Launched late last year, Netflix’ streaming service in Canada has 800,000 subscribers, although that’s fewer than it had predicted.

Hastings said:

– The company plans to launch streaming-only services in two more countries. It expects operating losses of $50 to $70 million in the second half of 2011 as a result. It said it would explore launching in a fourth country in early 2012.

– Developing apps for Google’s Android operating system is “a big priority,“ but he did not say why or when. There is already a Netflix app for the iPad.

Netflix charges $8 monthly for streaming only. A great many of its shows are available only on DVD so many subscribers pay more per month to get DVDs. Getting Blu-ray discs also costs more monthly. Netflix said its average revenue per subscriber during the quarter was $12, down from $12.90 in the year-ago quarter. It said it expects that to continue to decline as more customers stop taking DVDs.

However, we think that’ll be a long, slow decline because of the large number of shows that are available only on DVD and the attraction of Blu-ray’s better video quality. That could change if Netflix gets a higher percentage of rights to stream shows. It currently has streaming rights to about 20,000 shows.

Of course, the company saves on postage for streaming subscribers. Handling and postage can be considerable because Netflix has so many DVD warehouses that most subscribers get next-day service.

To that end, it’s spending more on streaming rights. It paid $192 million for streaming rights in the first quarter, almost four times as much as the year-ago quarter.

Hastings said Netflix is not responsible for cord-cutting. “The data show that Netflix is a supplemental channel,“ Hastings said, not a replacement for pay-TV. “While Netflix is likely to show huge growth again this year, we think cord-cutting will be minimal to non-existent.“

He would say that, of course, not wanting to rile the pay-TV companies into protesting overly much to the content providers that they and Netflix rely on for bread and board.

After all, the millions of smart TVs, gaming consoles, smart TV adapters and Blu-ray players being sold in the States all have a Netflix app. Some even come with a red Netflix button on the remote.

About the Author

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