UPDATE, 4:03 PM: Netflix CEO Reed Hastings has good news for Hollywood: He plans to keep buying movies and TV shows for his streaming service “for a very long time,” he told analysts in a conference call. He’s remains mostly interested in prior season or older TV re-runs as opposed to recent and original shows; the lower cost makes it easier for Netflix to keep the price of its streaming service at $7.99 a month. He also wants to differentiate Netflix from cable and satellite TV Everywhere plans to stream current content to their subscribers. Some competition is inevitable: Most of the time he has to bid for programming against cable channels — and the pattern in the industry is to buy exclusive rights. Still, “we will continue to be an active bidder in that market.” Hastings also defended his strategy of offering all episodes of a TV series at the same time instead of mimicking conventional TV and introducing them one at a time. Netflix is about “binge viewing,” he says. “We’re not particularly focused on a particular show to drive retention.” He rejected the idea of offering titles on a pay-per-view basis. That would “confuse the brand,” he says. Wall Street’s concerned: Netflix’s programming outlays were 100% higher in the last three months of 2011 than they were in the same period in 2010. “We feel great about the content we’ve got,” Hastings told analysts. “We don’t feel great about the profit stream.” But Hastings says that should improve as subscriptions grow, with losses moderating in mid-2012.
As for DVD rentals, Hastings says that the business will continue to decline “forever.” He’s not concerned, though, that Netflix will suffer from the new arrangement with Warner Bros which will double its delay in delivering new releases to 56 days. Netflix customers mostly rent older films and “when we went (from no delay) to 28 days we didn’t see a big shift.”
Having just returned from the Sundance film festival, Hastings told analysts to check out The Surrogate and Beasts Of The Southern Wild. “I’ll try to make sure they’re on Netflix,” he said.
PREVIOUS, 1:04 PM: Shares are up more than 13% in after hours trading following an earnings report that suggests the worst may be over for the beleaguered home video company. It reported net income of $41M, down 13% vs the 4Q period in 2010, on revenues of $876M, up 47%. That’s a lot better than the $857.9M revenue figure that analysts had forecast. And earnings, at 73 cents a share, far exceeded the 55 cents that the Street anticipated. Other metrics also should impress company watchers: Netflix ended the year with 21.67M streaming subscribers in the U.S. – up 220,000 from the end of September, and ahead of the 21.5M it had told investors to expect. Domestic DVD subscriptions, at 11.17M, were down 2.6M but were within the range that the company had forecast. International subscriptions, at 1.86M, also were on target. Due to the expenses for Netflix’s overseas expansion, especially in the UK, the company told investors to expect a loss of as much as $27M in the current quarter. With DVD profits also declining, ”we expect modest quarterly losses, as well as losses for the calendar year,” CEO Reed Hastings said in a letter to shareholders. “Until we achieve our goal of returning to global profitability, we do not intend to launch additional international markets.” He adds that Netflix sees “an enormous opportunity to build a global Internet TV network of unparalleled reach and consumer delight” and expects to resume the overseas expansion “after our return to global profitability.” Hastings also sought to reassure investors that his company will be fine next month when it will lose programming from premium cable channels Starz and Encore. Due to the many other content deals Netflix has made, he says that “the only significant loss is the current 15 Disney output titles, such as Toy Story 3 and Tangled, which currently constitute about 2% of our domestic viewing.” And next year when Netflix’s deal with DreamWorks animation kicks in “we’ll strengthen our long-term, stable flow of great animated family film titles.”