Netflix sees more studios holding back new releases, adds more than 1 million subscribers (updated)

The recession has been good to Netflix.

The DVD-by-mail giant finished off a strong 2009 with a bang, adding more than 1 million subscribers during the final three months of the year and boosting revenue by 24% from the same quarter a year ago.

In prepared remarks, Netflix chief executive Reed Hastings also said that a recent deal reached with Warner Bros. that blocks new DVDs from being available on the service until 28 days after they go on sale will likely be replicated with other suppliers.

"We expect to come to similar terms with some of the other major studios over the next two years as our deals come up for renewal," he said.

When the Warner Bros. agreement was announced last month it generated complaints from some subscribers who felt that Netflix caved to a studio's demand at their expense. However, Netflix noted that the deal will give access to more movies for its online streaming service.

Netflix ended 2009 with 31% more subscribers than it had a year ago. That compared to an annual growth rate of 26% in 2008 and 18% in 2007, demonstrating that interest in the service has been accelerating despite a downturn in consumer spending.

Revenue was $444.5 million in the fourth quarter, up 24% from the same quarter a year ago, while net income increased 36% to $30.9 million. For the full year, revenue grew 22% to $1.67 billion and net income increased 40% to $115.9 million.

[Update, 3:55 p.m.: The company said it expects to end this year with between 15.5 million and 16.3 million subscribers. Revenue is expected to be $2.05 billion to $2.11 billion and net income between $125 million and $137 million.]

Investors were thrilled, sending Netflix shares up 13% to $57.69 in after-hours trading.

Netflix's good news is not representative of the overall home entertainment business, for which total revenue grew only 5% in 2009, industry trade organization the Digital Entertainment Group recently reported. Retail DVD sales and rental chain Blockbuster Inc. warned investors last week that its fourth quarter performance would be significantly below expectations.

Hastings said increased usage of Netflix's Internet streaming service has been a key growth driver, suggesting that users are becoming more comfortable watching movies on computers.

About 48% of subscribers streamed a movie fourth quarter, up from 41% in the third quarter. Adding content to the service, which consists mostly of catalog titles along with some newer movies accessed from pay cable channel Starz, is a top priority for the company. Hastings warned that talks to do so may become more contentious in the future, most likely because Starz, HBO, Showtime and the new Epix pay channel don't want to cede ground to Netflix. In addition, other Internet companies such as Apple, Amazon and Google are becoming increasingly competitive in the video space.

"Hopefully, our future negotiations won't be as acrimonious as those between Fox and Time Warner Cable," Hastings said. '[B]ut public tension during the negotiations between suppliers and distributors seems to be endemic in our industry."

--Ben Fritz

Photo: Paul Sakuma/AP

Comments

[Joseph L Cooke]

I hope Netflix, along with their irritating pop ups, goes bust. I support Redbox whenever I can.

[Doug]

Hate the Warner Home Video delay in making movies available to Netflix. I seriously doubt it's going to increase dvd sales or pay per view income for them or other studios that may join in this practice. Most people won't buy a movie they haven't seen, and I think most Netflix patrons will wait 28 days to see a new release rather than spend four bucks to see it on pay per view. As a Netflix subscriber and someone who buys a lot of dvds, I'm less likely to buy WB discs now because of my annoyance with this practice.

[Mike F]

We're talking 28 days folks. Less than a month... so that more movies can be available via streaming on-line to TV.

It's all about convenience and selection. This is a great deal.

Physical media will be secondary soon. Which is why I laughed when I saw the post about supporting Redbox. How is that convenient??

It's a dollar a day, and you have to drive the disc back to its location... and the selection choice is very restricted.

Netflix is way ahead of the game.

[Director]

The Warner deal is stupid (for Warner). By giving NetFlix more streaming titles all they have managed to do is give subscribers more to do while we wait for the (probably terrible anyway) new releases. I won't even notice the difference.

[Max]

Hold off 28 days after a new release?
Sorry studios, that will make little difference.
Because I can wait, it isn't like there are other movies to rent.

[Pat K.]

Netflix is a dying business. When people figure out they don't have to shell out a monthy fee to maybe get movies that have been out for a month things will turn this year. Was a very early adopter of Netflix years ago. Dumped last year when a)New releases were never sent in first weeks b)Raised blu-ray price. Now, Redbox and Hulu fill in quite nicely. I've always bought DVD or Blu-ray that I really wanted anyway.

[Kevin]

28 days? No problem. I rarely rent new releases, anyway.

[Mike F]

In response to Pat K's outragious claim that Netflix is a dying business. See link below.

http://www.businessweek.com/news/2010-01-28/netflix-rises-most-in-7-years-on-2010-profit-forecast-update2-.html

If you're going to post a comment... try to make some sense please.

Netlfix is the national leader in rental subscriptions... growing stronger than ever, since the advent of streaming on-line.

This Pat K seems jealous of its success. Maybe he should become a member and feel better.