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Netflix attracting more subscribers through streaming video

Netflix Netflix showed little sign of the economic slowdown that's been nailing other companies this corporate earnings season. But it attributed its fourth-quarter jump in revenue, profit and subscribers to a surprising factor: surging popularity of its online video streaming service.

The movies-by-mail service said today it added 718,000 subscribers in the fourth quarter, far more than analysts had expected, bringing its subscriber base to nearly 9.4 million. Netflix expects the number to reach 10.6 million subscribers within the next three months, even as other parts of the entertainment business contract because of the recession.

"It's very clear that streaming is energizing our growth," Netflix Chief Executive Reed Hastings said on a call today with analysts.

Hastings said the company's streaming business was propelled by connection with devices from LG Electronics, Samsung and Microsoft that offer Netflix's "Watch Instantly" service. Subscribers can use the service to stream any of about 12,000 television shows and movies without waiting for the DVD to arrive by mail. The company "substantially" increased its investment in streaming video -- and plans to do the same in 2009, he said.

"We plan to spend as much money as we can with the studios, licensing as much content as we can -- and we are already one of the studios' largest Internet revenue sources," Hastings said. "Our spending is limited only by what content is available at reasonable costs."

DVDs remain the core of the company's business, and Netflix doesn't expect ...

... that market to peak until at least 2013. But Netflix is betting that its future relies on delivering its streaming service to the television -- and it's paying device makers marketing money to promote Netflix.

Hastings expressed confidence that Netflix can thrive, even as online services such as Hulu rely on advertising to provide TV shows and movies free to viewers and Amazon.com and Apple offer movie downloads for purchase or rental.

"Consumers who subscribe to Netflix also go to movies, subscribe to cable, use pay-per-view services, watch YouTube and even rent DVDs from local stores," Hastings said. "We think there is room for us to create a large subscriber base while other firms also succeed with their models."

Netflix reported revenue of $359.6 million, up 19% from a year ago. Net income rose 45% to $22.7 million, or 38 cents a share, compared with net income of $15.7 million, or 23 cents a share, a year ago.

-- Dawn C. Chmielewski

Photo credit: Ken Hively / Los Angeles Times

 
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