Entertainment Industry

Category: Netflix

Netflix posts first loss since 2005, shares plunge

FireShot Screen Capture #013 - 'Netflix' - movies_netflix_com_WiHome
Netflix Inc. reported its first net loss since 2005 in the first quarter, as the costs from international expansion outweighed the video subscription company's continued growth in the U.S.

The loss and the company's overall results were in line with analysts' estimates and Netflix's own guidance. But shares plunged 15% in after-hours trading. Apparently some investors thought analysts expectations were too gloomy and were concerned by indications in the results that the company’s foreign operations are moving slower than expected toward profitability.

Netflix reported a net loss of $5 million on revenue of $870 million in the first three months of 2012, compared with a profit of $68 million on $789 million in revenue during the same period last year.

The company added 1.74 million subscribers to its streaming service in the U.S. but lost 1.1 million DVD subscribers. Overseas, where the company operates in Canada, Latin America, Great Britain and Ireland, it added 1.2 million subscribers.

In total, Netflix had about 26.5 million customers in the U.S. and 3.1 million in other countries as of March 31.

The company's international operations accounted for a $103-million loss. In a letter to investors, Chief Executive Reed Hastings and chief financial officer David Wells said Canada will deliver a small profit in the current quarter, about a year and a half after launch and earlier than expected.

But Latin America, Great Britain and Ireland will take longer than two years, the company said, a warning that apparently concerned some on Wall Street. Netflix warned that it has been facing problems with awareness, device penetration, Internet infrastructure and online consumer payments in Latin America.

"The odds of us building a large, profitable business in Latin America are very good, but it will take longer than we initially thought," Hastings and Wells wrote.

Netflix's U.S. streaming business generated $67 million in profit on $507 million in revenue and its DVD business $146 million of profits on $320 million in revenue. The fact that DVDs are more profitable but losing subscribers to the less profitable streaming business has concerned some investors. But Hastings and Well said they expect streaming video's profit margin to continue growing.

The duo also wrote that after some success with their first exclusive series, the Danish import "Lilyhammer," and interest in its upcoming originals, including the return of "Arrested Development" and the Kevin Spacey polical series "House of Cards," they now view original programming as a "strategic expansion" instead of a "strategic experiment."

Meanwhile, Netflix viewers are increasingly choosing television over movies on the company's streaming service, a trend accelerated by the recent loss of new releases from Sony Pictures and Walt Disney Studios via a deal with pay cable channel Starz that expired in February.


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Netflix chief Reed Hastings got 68% raise in 2011, pay cut for 2012

-- Ben Fritz

Photo: Netflix's website.

Netflix chief Reed Hastings got 68% raise in 2011, pay cut for 2012

Reed Hastings Netflix

Netflix Chief Executive Reed Hastings' compensation skyrocketed 68% to $9.3 million in 2011, but subscriber losses and strategic missteps will result in a pay cut this year for the head of the popular video subscription company.

The shift is the result of a difficult year for Netflix, during which an unpopular price increase and a botched plan to divide its delivery systems into a DVDs-by-mail and a separate online brand caused a precipitous drop in the company's stock price and a temporary shift in its previously red-hot customer growth.

Hastings' 2011 salary was $500,000, virtually the same as in 2010. However, the value he realized from exercising stock options grew to $8.8 million from $5 million. His total compensation for the year was just under $9.3 million, compared with $5.5 million in 2010.

The company noted in its proxy filing with the Securities and Exchange Commission filed Friday that Hastings' compensation was above the 75th percentile for CEOs at what it considers peer companies — primarily Silicon Valley firms such as Electronic Arts and Autodesk.

However, Hastings' compensation pales next to that of CEOs in the media industry with whom he often deals, such as CBS' Leslie Moonves, who received nearly $70 million in 2011, and Walt Disney Co.'s Robert Iger, who took home $31.4 million.

Netflix noted in its filing that 2012 "compensation for Mr. Hastings has been reduced in light of the Company’s performance in 2011." As a result, the initial value of his stock option allowance — the final value of which is realized when he exercises them — was cut in half from $3 million in 2011 to $1.5 million this year. Hastings' salary will remain the same.

Other Netflix executives got huge raises in 2011 as well. Chief Content Officer Ted Sarandos, who acquires rights to movies and television shows for Netflix's streaming video service, saw his compensation more than double to $4.9 million. Chief Production Officer Neil Hunt got an 81% raise to $3.6 million and compensation for Chief Marketing Officer Leslie Kilgore, who resigned in February, grew 45% to $4 million.

All of Netflix's senior executives except the CEO will receive pay increases in 2012, leaving Hastings as the only one to take a hit for the company's missteps last year.

The Los Gatos, Calif., company lost 800,000 U.S. subscribers during the third quarter and its stock fell 77% from July to the end of 2011. It gained back 610,000 subscribers during the fourth quarter, however, and Netflix shares are up more than 50% so far this year.


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— Ben Fritz

Photo: Reed Hastings, chief executive of Netflix, seen in 2005. Credit: Fred Prouser / Reuters

Netflix cable platform may be a long way off

Netflix cable plans may take awhile
Don't bank on Netflix launching a cable service any time soon.

Last week, a Reuters story speculating that Netflix was planning to create a cable distribution platform for its movies and television shows drew a lot of attention. That article grew out of comments that Netflix Chief Executive Reed Hastings made at an analyst conference where he said down the road he could see his company launching a competitor to HBO. 

In the scenario floated by Reuters, Netflix would offer its content in an on-demand format, not as a linear channel. In other words, consumers would go to the channel and see a list of programs from which to choose. It would not be a regular channel with a schedule of shows. 

However, Netflix itself is downplaying the speculation and there seems to be little, if any, interest in carrying such a service from the biggest multichannel video programming distributors including Comcast Corp. and satellite broadcaster DirecTV, people familiar with their thinking said.

Most distributors already have on-demand channels with similar content to what Netflix would be offering. Furthermore, cable and satellite broadcasters view Netflix as a competitor and have little incentive to let them in the door.

There is an even bigger fly in the ointment. Executives from some studios and networks that sell content to Netflix, who spoke on background, said Netflix couldn't create an on-demand cable channel under the terms of its current deals. Netflix would have to restructure its content agreements if it wanted to offer its service on more than an online platform.

None of this is to say that Netflix won't eventually find a way to get its service on cable systems, either in on-demand or linear form. But before that could happen, there would be a lot of hurdles to overcome, on both the distribution and programming fronts.


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-- Joe Flint

Photo: Reed Hastings. Credit: Norm Betts / Bloomberg.

Comcast launching Netflix-like streaming service

"Oceans Eleven"This post has been corrected, as indicated below.

With an eye toward holding onto current subscribers and attracting new ones who may be tempted by Netflix, Comcast Corp. is rolling out a new subscription streaming service that boasts a mix of TV re-runs and older films.

Called Xfinity Streampix, the service launches this week and allows users to watch content on televisions and Internet-connected digital devices like smartphones.

It will be free to customers who get their video, Internet and phone service from Comcast. People who get only their TV from the company will pay $5 per month. Netflix streaming costs $8 per month.

While the new service inevitably drew comparisons to Netflix, and spurred a 3% drop in that company's stock Tuesday, there are notable differences. Comcast's initial agreements with Walt Disney Co., Sony Pictures, Warner Bros., and NBC Universal (which the cable giant owns) provide it with less content than Netflix currently offers.

Xfinity Streampix users will get access to television shows like "30 Rock" and "Grey's Anatomy" and films like "Brokeback Mountain" and "Ocean's Eleven," but can't watch TV shows like "Mad Men" and movies like "Drive" that are exclusively on Netflix.

In addition, while anyone with an Internet connection and a digital device can access Netflix, Xfinity Streampix is available only to the people who live in areas covered by Comcast. Currently, there are 23.2 million homes that have Comcast television service, including many in San Francisco, Oakland and Sacramento.  Los Angeles is not part of the Comcast footprint, which also covers Chicago, Philadelphia, Washington, D.C., Miami and Houston. 

"We have no plans to take this outside our footprint," Marcien Jenckes, Comcast's general manager of video services, said in an interview. "It is not at all our intention to compete with Netflix."

Among cable companies, Comcast has been the most aggressive in adding new services to respond to the explosion of portable devices while trying to retain its core customers.

"This is an extension of our strategy to give consumers the content that they love where and when they want it," Jenckes said. "This just makes our existing subscriptions more valuable."

Netflix is not the only threat. The service could make Comcast more attractive, in the company's service areas, than subscriptions offered by satellite companies Dish Network and DirecTV and telephone companies Verizon and AT&T.

This new service adds to the more than 75,000 TV shows and movies currently available on Comcast's Xfinity On Demand service. Users pay for each film or episode through that more traditional video on-demand offering, which features more recent movies than the subscription package.

[For the record, 3:18 p.m. Feb. 21: An earlier version of this post said that 52.5 million homes have Comcast television service. In fact, Comcast has 22.3 million subscribers. The service is potentially available to 52.5 million homes in the regions served by the cable operator.]


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Photo: Brad Pitt and George Clooney in "Ocean's Eleven." Credit: Bob Marshak / Warner Bros.

Netflix discussing deal with ex-HBO Films chief Colin Callender

Lead_benNetflix is discussing a partnership with former HBO Films president Colin Callender to produce original content, including mini-series and movies, for the online video service, according to three people with knowledge of the talks who are not authorized to speak about them publicly.

Should a deal be reached, it would accelerate Netflix's growing resemblance to pay cable network HBO, where Callender worked for two decades and played a pivotal role in its award-winning programming success. He left amid a management shake-up at the Time Warner Inc.-owned cable network in 2008.

After amassing more than 20 million subscribers with a large selection of older movies and television reruns, Netflix has recently moved into original programming. The company launched its first series, "Lilyhammer," this month, and has at least five other shows in the works, including a political drama starring Kevin Spacey and a revival of Fox's sitcom "Arrested Development."

If he strikes an arrangement with Netflix, Callender would produce the first original mini-series and/or movies for its popular online streaming service.

Netflix is using original programming to help draw and retain subscribers as it faces increasing competition among on-demand online providers of films and TV reruns.

Similarly, HBO started off airing movies following their theatrical runs and then moved into original programs, building its brand with popular series such as "The Larry Sanders Show," "Sex and the City" and "The Sopranos."

The pay cable channel also regularly airs original movies and mini-series such as last year's "Mildred Pierce," for which star Kate Winslet won Emmy, Golden Globe and Screen Actors Guild awards.

During his tenure at HBO Films, Callender oversaw such acclaimed mini-series and original movies as "John Adams," "The Pacific," "Empire Falls" starring Paul Newman and Joanne Woodward, and "Recount" with Spacey.

Under his oversight, HBO Films not only produced TV movies and mini-series, but theatrical releases that included "My Big Fat Greek Wedding," "Maria Full of Grace" and "American Splendor."

In 2010, Callender formed his own Beverly Hills-based film, television and theater production company Playground Entertainment

Netflix has been aggressively pursuing new content deals as some of its most prominent arrangements for exclusive rights to movies are coming to an end.

A deal with pay cable channel Starz that gave Netflix access to films from Sony Pictures and Walt Disney Pictures expires at the end of this month, and one with Epix that gives Netflix users movies from Lionsgate and Paramount Pictures will become non-exclusive in September.

Original movies or mini-series produced by Callender could help to fill that hole.

Reached by email, Callender declined to comment, as did a spokesman for Netflix.


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Photo: Colin Callender. Credit: HBO

Netflix to get 'The Artist,' other films in Weinstein Co. deal

Academy Awards favorite "The Artist" and other films from the Weinstein Co. are headed to Netflix
Academy Awards favorite "The Artist" and other films from the Weinstein Co. are headed to Netflix.

The multi-year deal announced by the two companies Tuesday also includes a variety of the Weinstein Co.'s modest box-office performers, including the drama "Sarah's Key," the Madonna-directed "W.E." and the upcoming documentary "Undefeated." Those films will be exclusively available on Netflix's streaming service after finishing their theatrical run and debuting on DVD.

However, Netflix will not get Weinstein Co.'s more popular English-language movies, such as "Scream 4," "My Week with Marilyn" and "The Iron Lady." Those films are covered under an existing deal Weinstein Co. has with pay cable channel Showtime.

Netflix has been seeking exclusive deals with independent film studios in order to bolster its content library as it faces a growing array of competitors in the subscription video-on-demand space, including Amazon.com, a Verizon-Redbox joint venture and a just-announced plan from Comcast. It has already signed similar deals with Relativity Media, FilmDistrict and Open Road Films.

The deal also provides a boost to the bottom line of Weinstein Co., which is getting an undisclosed amount of revenue for movies that wouldn't have generated much money from traditional cable channels.


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-- Ben Fritz and Joe Flint

Photo: A scene from "The Artist." Credit: Peter Iovino / Weinstein Co.

Netflix stock surges 22% after strong earnings

Netflix stock soars.

Shareholders rushed to buy Netflix stock Thursday while there was mixed reaction among media analysts about future prospects for the Los Gatos, Calif., video subscription company. 

One day after reporting financial results and subscriber growth during the fourth quarter of 2011 that were stronger than many analysts and investors had expected, shares in the subscription video company surged 22% on Thursday, closing at $116.01.

That's the highest the stock has been since October, when Netflix shares plummeted following disappointing results for the third quarter, during which it lost 800,000 subscribers after a controversial price hike and aborted attempt to separate its DVD shipping business into a new brand called Qwikster.

The rush to buy Netflix stock came despite cautious responses from many analysts. Arvind Bhatia of Stern Agee said he was "incrementally bullish" but remained concerned about results in 2013 and maintained a "neutral" rating.

Janney analyst Tony Wible kept his "sell" rating and said he believes "it will be difficult to scale the low-margin streaming business that is now cannibalizing the high-margin DVD business."

John Blackledge of Credit Suisse was more bullish, calling Netflix's results "much better than expected" and said that while the company "remains in a transition period given a continued, albeit easing backlash from the pricing changes and international losses, we do not believe the opportunity has changed."

Thursday's increase accelerated a more than 65% jump in Netflix's share price since the beginning of the year. However, it's still far below a July high of just under $300.


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-- Ben Fritz

Photo: Netflix headquarters in Los Gatos, Calif. Shares in the subscription video company surged 22% on Thursday, closing at $116.01. Credit: Paul Sakuma / Associated Press

The Morning Fix: More trouble at OWN! Netflix on rebound?

After the coffee. Before another long day in court.

The Skinny: Hollywood makes being a lawyer seem so glamorous, but watching the Golden Globes trial for a few days will clear that image right up. It's hard work and long hours and lots of standing and no coffee allowed. I don't know how they do it. Thursday's headlines include more trouble at OWN, how electronic voting is coming for the Oscars, and a look at this year's Sundance "It" girl.

Oprah Winfrey's OWN network is struggling

The Daily Dose: One question still not answered in the aftermath of Lion Gate's plans to merge with Summit Entertainment is what happens to the latter's deal to sell its movies to HBO. Lions Gate is a partner in Epix, a smaller pay cable channel that competes with HBO. Summit signed a five-year deal with HBO that starts next year. People familiar with the matter think Summit will not try to break the contract with HBO since it is guaranteed revenue for its movies. Still, down the road it may get tricky to determine what (besides a "Twilight" movie) qualifies as a Summit movie that should go to HBO.

Will the last one leaving OWN turn out the lights? OWN, the cable network started by Oprah Winfrey and Discovery Communications, continues to struggle both on air and behind the scenes. On Wednesday, Lisa Erspamer, a top production executive at the network and a longtime member of Winfrey's inner circle, was shown the door, the latest in a string of high-profile departures at the network. Meanwhile, the talk show starring Rosie O'Donnell, which was OWN's big and expensive bet, is generating no heat in the ratings. O'Donnell has gone rogue off air, canning much of the staff of ex-Winfrey workers and abandoning the glitzy and expensive set that was built for her show in favor of a much smaller set that looks to me more like something one would see on a cheesy cable access channel. The details on Erspamer's abrupt departure and OWN's other headaches from Deadline Hollywood.

Some good news for a change. Netflix saw its subscriber and revenue numbers grow in the fourth quarter of 2011, which led investors to push the company's stock price up 13% in after-hours trading. However, profits were still off 13% compared with the fourth quarter of 2010. A look at the numbers from the Los Angeles Times and Wall Street Journal.

Going electric. The Academy of Motion Picture Arts and Sciences is moving ahead with plans to launch an electronic voting system and do away with paper Oscar ballots for its members. Fear not, those accountants from PricewaterhouseCoopers will continue to be in charge of counting the votes. The Hollywood Reporter says the move could have "far-reaching implications" for awards season.

Katie's comeback. Former "Today" and "CBS Evening News" anchor Katie Couric was down in Miami earlier this week meeting with television executives at an industry convention to promote her new talk show, which debuts this fall. Couric is banking on the vacancy created by Oprah Winfrey's departure from daytime. USA Today chats with Couric on what her show will be like.

Trading Martha for Marie. Hallmark Channel, which is dropping its association with lifestyle diva Martha Stewart, is close to a deal with Marie Osmond that will see the former teen star host a show for the cable channel, says the New York Post.

Inside the Los Angles Times: Gina Rodriguez is this year's Sundance "It" girl. It's a high-profile gig but it doesn't always turn into a long-term career. After threatening to close down, the motion picture nursing home is going to stay open and add new patients.

-- Joe Flint

Follow me on Twitter: It's where we pretend to know each other. Twitter.com/JBFlint

Photo: Oprah Winfrey. Credit: Prakash Singh/AFP.

Netflix deal with Warner Bros. includes delay in queues

Under a new deal between the two companies, Netflix users won't just have to wait 56 days to rent Warner Bros. movies on DVD. They'll have to wait 28 days to add the movies to their queues.

As part of the Warner's continuing effort to boost its DVD, Blu-ray, and video-on-demand business, the studio's new deal with Netflix throws up a new roadblock for people willing to wait and get the movie as part of their monthly subscription.

Beginning Feb. 1, when the new agreement goes into effect, Netflix customers won't even be able to add Warner movies to their queues until four weeks after the DVDs go on sale, a knowledgeable person not authorized to speak publicly confirmed. They would then have to wait another four weeks until Netflix starts shipping the discs.

Under the companies' previous agreement, users could add discs to their queues even before they went on sale. Warner executives apparently believed that policy made it easier for consumers to wait, confident that the discs would arrive eventually.

But now when users search for Warner's "A Very Harold and Kumar Christmas," which goes on sale Feb. 7, the Netflix website simply says the movie is not available. Consumers will have wait until March 6 to add the film to their queues and until April 3 to get it in the mail.

Warner Bros. has been on the leading edge of a group of movie studios that have taken steps to encourage consumers to buy DVDs and Blu-ray discs or rent movies via video-on-demand, transactions that are far more profitable for the studios than rentals via Netflix or Redbox.


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-- Ben Fritz

Photo: A shot of Netflix's web results for "A Very Harold & Kumar Christmas."

Netflix sees DVD business withering, gives up on video games


Netflix has given up all hope that there's a future in DVDs.

Just last summer, the subscription video company was touting the potential of its DVD business as it established a separate unit to focus on it. "In Q4, we'll also return to marketing our DVD-by-mail service, something we haven't done for many quarters," Chief Executive Reed Hastings and Chief Financial Officer David Wells said in a July letter to shareholders. "Our goal is to keep DVD as healthy as possible for as many years as possible."

But since the Qwikster debacle, when Netflix announced a separately branded business for DVD rentals and then abandoned it in the face of public outcry, the company appears to have given up on that goal.

On an earnings conference call with analysts Wednesday, Hastings said Netflix now has no plans to spend any marketing dollars on its DVD-by-mail service, which lost 2.76 million subscribers during the last three months of 2011.

"We expect DVD subscribers to decline each quarter forever," he said.

When the Qwikster plans were announced, Netflix also said it would add video games to its DVD-by-mail business. But Hastings said the company has given up on that plan as well.


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Photo: Netflix aborted Qwikster.com website. Credit: Netflix


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