Netflix attracting more subscribers through streaming video

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

Comments

[Robert Cunningham]

I have been a Netflix subscriber since 1998, and a Netflix shareholder shortly after the company went public. In my opinion, there is no other company that has a customer satisfaction rate as high as Netflix. I have not waited in line at a video store in years, and many first run movies arrive in my mailbox on the first day they are available for sale. Just this year, their Santa Ana location, which serves the L.A. area, has started working on Saturdays, which eliminates my only previous complaint about them--No Monday deliveries of DVDs. Other businesses take note; if other companies were run only half as well as Netflix, our economy would be booming now.

[Jeffrey B.]

a rather unwieldy, and arrogant, communications company provides my t.v. service, and they boast their "on-demand" pay service. well, you can only "on demand" what that company allows you to. not very "on demand" if i may say so?
an interesting, but tentative, beginning netflix, and i congratulate you. now, how 'bout a little courage ... oh, "cowardly lion"? i want "on demand" without qualification. i want this program, episode 42, and play it for me between 21:00 and 22:00 hours. now, that's what i call "on demand".
i'm pitching ... anybody out there catching?

[anony]

I've been a Netflix subscriber since 2001 and am a very happy one. Netflix never gave me any grief when the DVDs were lost or stolen over the years. Thanks to my local post office, the DVDs were delivered on time 99.9% of the time.

What I like about Netflix, other than not having to waste time in the isles and to wait in line for check-out, is its DVD library. Every DVD rental can carry the current release and blockbuster titles but Netflix carries documentary films, foreign films, little known films, and BBC produced shows and series that I love dearly.

I want Netflix to go on operating forever. I am counting on Netflix to send me disks of Dexter and Mad Man, shows that I don't get to see (no cable and no reception at home) now, when I am an old lady sitting on a rocking chair. =)

[Jay W]

If any media executive is wondering what the future of media delivery will or should be, they need only look at the posts here. The customer is speaking...listen up.
Let me add apple itunes as one of the other content delivery business models that will thrive.