Entertainment Industry

Category: Netflix

Netflix growing again, barely beating fourth-quarter expectations

NetflixScreen1
Netflix Inc. is headed back up again.

The Los Gatos-based subscription video company on Wednesday reported better-than-expected earnings and a return to subscriber growth in the fourth quarter, beginning a promised turnaround after a dreadful third quarter, during which it lost subscribers and its stock price plummeted.

Investors were pleasantly surprised by the company's latest results, driving Netflix's stock up 13% in after-hours trading. Since the end of 2011, Netflix stock has been on an upswing, rising 37% to a closing price of $95.04 on Wednesday. That's still far below its high of $295.14 in July.

Net income was $41 million, down 13% from a year earlier. Revenue rose 47% to $876 million. Both were slightly higher than Wall Street analysts had expected.

Netflix added a total of 610,000 U.S. subscribers in the last three months of 2011, nearly making up for its loss of 800,000 in the third quarter. The company now has 24.4 million domestic customers, 21.67 million of whom pay $8 per month for Internet streaming and 11.17 million of whom pay $8 or more for DVDs by mail (some customers choose both options, but Netflix did not disclose how many "hybrid" users it has).

From July through September, Netflix reeled from the negative public response to a surprise price increase and aborted plan to separate its DVD-by-mail business into a separate brand called Qwikster. The effects of those missteps seemed to wane by December, when Netflix said it "returned to strongly positive net streaming additions," driven by fewer cancellations than expected.

The company still added 25% fewer subscribers than in the fourth quarter of 2010, when 2.7 million net new customers signed up. But in the current quarter, which will end March 31, Netflix Chief Executive Reed Hastings and Chief Financial Officer David Wells said they expect to match the company's performance in its streaming business during the same period last year by adding 1.7 million net subscribers.

Netflix expects to lose an additional 1.5 million DVD customers, however, after losing 2.76 million in the fourth quarter. The company also expects to continue seeing a migration of its customer base from DVDs-by-mail to digital streaming.

It added 380,000 customers in Canada and Latin America, where it operates streaming video businesses, bringing its total international customers to 1.86 million. In Latin America, where it launched in September, Netflix said it ended 2011 with about 500,000 subscribers. That's similar to the number it added in 2010 during its first four months in Canada, even though there are about four times as many households with broadband access in Latin America. Netflix attributed its problems there to a number of factors, including high piracy and low credit card usage online.

This month, Netflix launched its streaming service in Britain and Ireland. So far it is adding customers faster than during the first month in Canada, the company said.

In the current quarter, Netflix expects to report a net loss for the first time since 2005 because of its increased investments in content for its international services, particularly in Britain and Ireland. Hastings and Wells told investors the company will lose $9 million to $27 million on $842 million to $877 million in revenue.

Both are in line with analysts' expectations.

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Photo: Netflix's home page.

Redbox, Warner Bros. headed to war over new DVD delay

Warner Bros. and Redbox are about to re-ignite a battle over how long consumers have to wait to rent DVDsThis post has been updated. See the note below for details.

Warner Bros. and Redbox are about to re-ignite a battle over how long consumers have to wait to rent DVDs.

The Time Warner Inc.-owned studio is instituting a new policy that all DVD rental outlets must wait 56 days from the time the disc goes on sale at retail outlets Wal-Mart and Best Buy until consumers can rent them, according to people with knowledge of the matter who were not authorized to discuss it publicly. That's double the current 28-day "window."

A spokesman for Warner Bros.' home entertainment division declined to comment. But executives at the studio have previously said they were seeking a longer delay, which they believe will help boost flagging DVD sales and video-on-demand, both of which are more profitable than disc rentals.

Netflix has agreed to abide by the 56-day delay, one of the people close to the situation confirmed. 

However, Redbox will wait no longer than 28 days to rent discs, interim President Gregg Kaplan said in an interview this fall. A spokeswoman confirmed Friday that the company's position has not changed.

That means the $1-per-night kiosk company will no longer be able to get discs directly from Warner Bros. but will have to buy them in bulk from retail stores. Redbox did the same thing in 2010 when the parties were in a similar fight. Illinois-based Redbox ultimately agreed to the 28-day delay.

The new policy, expected to be announced next week at the Consumer Electronics Show in Las Vegas, is to take effect Feb. 1, the day after Warner Bros.' current deals with Netflix and Redbox expire.

It's also expected to extend to the nation's third-largest rental outlet, Blockbuster.

[Updated, 2:18 p.m., Jan. 6: A person familiar with the thinking of executives at Blockbuster said it too will not accept the 56-day delay and will buy Warner Bros. DVDs through alternative means.]

Previously, Blockbuster was the only major DVD renter that offered discs the same day they went on sale, an advantage studios gave the struggling company as it went through bankruptcy last year and was ultimately bought at auction by Dish.

Warner Bros.' new policy could soon be adopted by Universal Pictures. That studio's agreements with Redbox and Netflix, which include a similar 28-day delay, expire in April.

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Photo: Anja Murphy returns videos to a Redbox kiosk in an Albertsons supermarket in Santa Monica. Credit: Lawrence K. Ho / Los Angeles Times

Netflix stock jumps 11% on big streaming usage figure

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Netflix stock surged 11% on Wednesday, its biggest gain in almost a year, as investors were impressed by new data on streaming video usage.

The online movie and television subscription company said early Wednesday that its customers streamed more than 2 billion hours of content during the final three months of 2011. Analyst Richard Greenfield of BTIG estimated that would make Netflix the No. 15 most watched television network, ahead of FX, History Network and CNN.

In the 21 million homes estimated to use Netflix's streaming video -- the company has not updated its subscription figures since Sept. 30 -- it is the second most watched network, behind only CBS, Greenfield said.

"The most relevant takeaway is that Netflix streaming usage is exploding and is far, far bigger than traditional media executives give it credit for," the analyst said.

Investors seemed impressed by the prospect of Netflix returning to a fast-paced growth path and taking share from traditional media companies after a tough 2011. The company lost 800,000 subscribers during the third quarter of last year and saw its stock plummet more than 75% from July to the end of the year, following an aborted attempt to separate DVD streaming into a separate brand called Qwikster and a price hike that infuriated many consumers.

The jump in Netflix's share price to $80.45 Tuesday was its largest one-day gain since Jan. 27 of 2010, according to Bloomberg.

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Photo: The Netflix interface on Xbox 360. Credit: Netflix Inc.

Netflix to premiere all eight episodes of 'Lilyhammer' simultaneously

PRN7-NETFLIX-LILYHAMMER-1yHighAs Netflix debuts its first original series, "Lilyhammer," on Feb. 6, the video subscription service has settled on a scheduling strategy suited for the digital world: making every episode available at once.

Signaling that it's embracing users' preference to watch multiple episodes of their favorite programs as a "marathon," Netflix won't be spacing out the eight shows of its first season of the comedic crime series over several weeks.

"If you love the first episode, there is no need to wait until next week, or to set a DVR, to catch the next one," Netflix's chief content officer, Ted Sarandos, said in a statement Tuesday.

"Lilyhammer" stars E Street Band rocker Steven Van Zandt in a role similar to the one he played on the popular and now defunct HBO series "The Sopranos," as a gangster in the federal witness protection program who moves to Lillehammer, Norway. Netflix is the exclusive distributor of the show, which is produced in Norway, the U.S., Canada and Latin America.

It's the first of several series to which Netflix has bought exclusive rights in a bid to expand its lineup beyond television reruns and older films. Later this year the service will start streaming the original political drama "House of Cards," starring Kevin Spacey. In the first half of 2013, Netflix will run new episodes of the canceled Fox comedy "Arrested Development."

Netflix has indicated that it probably will follow a similar release strategy for its other upcoming original programs, although exact launch dates have not been set.

More than 60% of the content viewed on Netflix's Internet streaming is television. Consumers  have come to use the service more as a way to catch up on TV shows they missed on-air than to view its more limited collection of movies, most of which are at least a decade old.

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Photo: A promotional logo for "Lilyhammer." Credit: Netflix.

CEO Reed Hastings to earn less than 2 other Netflix execs in 2012

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Netflix Chief Executive Reed Hastings is taking a 33% pay cut after a dismal year for the company, leaving chief content officer Ted Sarandos as the highest paid executive at the company.

The online video and DVD subscription company revealed in a recent Securities and Exchange Commission filing that Hastings' stock option allowance for 2012 will be $1.5 million, half of what he is receiving for 2011. His salary will remain $500,000 for a total package of $2 million. The company did not disclose a reason for the pay cut, but it comes after a series of missteps -- including an unexpected price hike that angered consumers and an aborted attempt to separate the DVD business from Internet streaming -- led 800,000 subscribers to quit and the company's stock price to drop 76% from its high in July.

Hastings said he has slid into "arrogance," and was quoted as saying his company had been "overconfident" and had moved "too fast."

Other top Netflix executives won't see smaller paychecks in 2012, however.

Notably, Sarandos, who negotiates deals for content out of the company's Beverly Hills office, is getting a 22% raise next year, bringing his total compensation to $2.8 million from $2.3 million and making him Netflix's highest paid executive.

Also seeing their pay rise are chief product officer Neil Hunt, who will also make more than Hastings next year, chief marketing officer Leslie Kilgore, and chief financial officer David Wells.

Netflix's top executive compensation paled in comparison with the big media companies that provide its content. Viacom CEO Phillippe Dauman had a 2010 package worth $84.5 million, for instance, while CBS Corp. head Leslie Moonves received nearly $58 million.

Pay cuts for top executives at media companies have been rare in recent years despite the weak economy. A notable exception was Nintendo Chief Executive Satoru Iwata, who took a 50% whack after the company's 3DS portable game console posted disappointing early sales.

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Photo: Netflix Chief Executive Reed Hastings in September. Credit: David Paul Morris/Bloomberg

Viewers watching more streaming video on game consoles

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Video game consoles aren't just for gaming anymore.

Increasingly, people are using their Xbox 360, PlayStation 3 and Wii devices to stream movies and TV shows, according to a survey released Wednesday by the Nielsen Co.

Because all three consoles readily connect to the Internet, viewers can use them to access video-on-demand services like Netflix, Hulu Plus, YouTube, Major League Baseball Network and ESPN to watch on their TV screens rather than on small computer monitors.

And that seems to be just what consumers are doing. Streaming video accounted for 14% of the average time spent using Microsoft Corp.'s Xbox 360 in October, up from 10% a year earlier, according to a Nielsen survey of 3,000 people.

For Sony Corp.'s PS3, the share of streaming video was 15% this year, up from 9% last year. The shift was even more dramatic for Nintendo Co.'s Wii, which jumped to 33% from 20%.

Xbox and PlayStation users also spent an additional 5% of their time watching movies and television shows they paid to download, an option not available on the Wii.

That's good news for studios looking to make more money through digital distribution. Game consoles, along with the Apple TV, are the most popular ways to reach people who want to watch video on their high-definition televisions.

It's more troubling for television networks seeking to boost their ratings and ad revenue, however. The new data emphasize that consoles aren't stealing viewers' attention just with video games but also with content that serves as a direct substitute for traditional TV watching.

Game consoles have proved particularly effective for Netflix. An earlier Nielsen survey found that half of the users who utilize its streaming offerings do so on the PlayStation, Xbox or Wii.

Two of the consoles are also popular as DVD players. People spend 15% of their time on PS3s watching DVDs or Blu-ray discs. Sony's device is the only console that plays Blu-ray discs and is the best-selling Blu-ray player on the market. Xbox 360 users spend 9% of their time watching DVDs. The Wii does not play movies on discs.

Below is a Nielsen chart summarizing the survey results.

Nielsen Video Game Console Usage

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Photo: The Netflix interface on Xbox 360. Credit: Netflix Inc.

Netflix Facebook app is one step closer to reality

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Netflix's efforts to launch a U.S. Facebook application that would make recommendations based on friends' preferences passed a major hurdle in Congress on Tuesday.

The House of Representatives passed H.R. 2471, a bill that would allow companies such as Netflix to access certain consumer data from the Internet with their consent.

Netflix Chief Executive Reed Hastings had said his company's Facebook app would launch this fall in all 44 countries where it operates except the U.S., because of restrictions under the 1988 Video Privacy Protection Act.

That law was passed in response to the disclosure video rental records of Supreme Court nominee Robert Bork during his confirmation hearings in 1987. It forbids the disclosure of people's video rental information. When Blockbuster attempted to share a woman's rental history with Facebook in 2008, it was sued for violating the law. In 2009, a suit citing the Video Privacy Protection Act was filed against Netflix.

If the new law, which received overwhelming approval in the House with a 303-116 vote, passes the Senate and is signed into law by President Obama, it will give Netflix a powerful new tool to retain customers who are active on the Internet's most popular social network.

That could be useful to the company, as it lost 800,000 subscribers during the three-month period that ended Sept. 30 after a surprise price hike of up to 60% and an aborted plan to separate its DVD rentals into a new service called Qwikster. Netflix is looking to make up ground among customers and also on Wall Street, where its stock has plunged 76% since July.

Perhaps because of the good news from Capitol Hill, Netflix shares rose 5.6% to $71.96 on Wednesday even though the overall Nasdaq index was down slightly.

-- Ben Fritz

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Netflix 'got overconfident' this year, CEO Reed Hastings says

NETFLIX

Netflix Chief Executive Reed Hastings, confirming what his critics have said for months, conceded his company "got overconfident" this year and moved too fast to get its customers to stop ordering DVDs in favor of online streaming.

He also said his company sometimes pays too much for its content.

"Our big obsession for the year was let's not live and die with the DVD," Hastings said Tuesday in an interview at the UBS Global Media and Communications Conference in New York.

Earlier this year, Netflix introduced a new pricing scheme and did away with its $9.99 plan that let users watch an unlimited number of movies online and rent one DVD at a time. Now, subscribers who want that combination will have to pay $15.98 a month — $7.99 for Netflix Instant streaming and $7.99 to receive discs in the mail.

That led more than 800,000 subscribers to cancel the service and caused a multibillion-dollar drop in Netflix's market value.

"It turned out to be a little too fast," Hastings said, adding that Netflix took an image beating similar to the one that Bank of America got for trying to charge monthly fees for use of its debit card. Ultimately, he said, this will be forgotten in a few years when streaming content becomes the primary way people view content.

"Streaming is the future," he said.

Hastings spent much of his interview talking about Netflix's push into original content. The service is making a political drama called "House of Cards" starring Kevin Spacey and also is producing new episodes of the critically acclaimed Fox sitcom "Arrested Development."

"'House of Cards' is coming together great and 'Arrested Development' will be off the charts," Hastings said. He added that the creative community is "welcoming us as another bidder."

And why not? Asked if Netflix has been spending too much on old TV shows and movies for its streaming service, Hastings acknowledged that "sometimes we do overpay."

Hastings said the competitor he fears most is Time Warner's HBO and its new HBO Go service.

"HBO is becoming more Netflix-like and we're becoming more HBO-like," Hastings said, referring to the pay cable channel's new iPad application HBO Go, which enables subscribers to watch the network on the tablet device.

Currently, HBO does not offer its HBO Go service to people who don't already buy the pay cable channel via a cable or satellite operator. "Today they are kind of in a gilded cage," Hastings said. "They are not competing directly with us, but they can."

HBO has repeatedly said it does not plan to offer a version of its channel that would bypass multichannel video programming distributors.

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Photo: Netflix Chief Executive Reed Hastings in September. Credit: David Paul Morris/Bloomberg

Netflix to bring back 'Arrested Development'

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Netflix has made another big programming move, striking a deal to bring back from the dead the critically acclaimed Fox series "Arrested Development."

The quirky ensemble show, which lasted only three seasons but won an Emmy Award for best comedy, followed the antics of the morally challenged Bluth family. The series, whose stars included Jason Bateman, Will Arnett, Michael Cera and Portia de Rossi, was cancelled five years ago, it continued to find new fans via DVDs and reruns.

The show is expected to return with new episodes in the first half of 2013. The entire cast is expected to return, a person close to the project said. There has also been talk of making an "Arrested Development" movie as well, but so far no definite plan for that has emerged. There is no word yet as to how many episodes Netflix will order.

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Home entertainment spending rises for the first time since 2008

 

Amazon's Kindle FireSpending on home entertainment totaled $3.9 billion in the third quarter of this year, up 5% from a year earlier, marking the first increase since the recession took hold in 2008.

Purchases of recorded movies fell to $1.7 billion in the latest period, down 4% from the third quarter of 2010, a new report from Digital Entertainment Group shows. 

The continued drop in consumer purchases of movies came despite the growth in popularity of Blu-ray discs. Sales of films Blu-ray discs, an increasingly popular format, were up 58%, but that wasn't enough to offset a decline in DVD sales.

The video rental market also was soft, staying relatively flat at $1.8 billion. The closing of hundreds of Blockbuster outlets helped push rental revenue from physical stores down 29%. The loss of Blockbuster stores was partially offset by gains in rentals at Redbox kiosks.

Digital revenue, increasingly important for the home entertainment business, showed double-digit percentage gains. Spending on online rentals and purchases jumped 56% to $811 million as subscription streaming services such as those offered by Netflix and Amazon.com gained popularity. The increase also reflects a decision by Netflix to report its revenue from streaming separately from its movies-by-mail revenue.

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Photo: Amazon.com is bulking up its Amazon Prime service, in part to provide entertainment content for the company's new Kindle Fire tablet. Credit: Emile Wamsteker / Bloomberg 

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