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

January 27, 2010 |  2:57 pm

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