A Turnaround at Netflix, as Its Mail Sector Shrinks

The company posted total revenue of $875.6 million, up 47 percent from the quarter last year. As the company invested in content rights and spent more to gain new subscribers, its profit, $40.7 million, or 73 cents a share, was down nearly 14 percent from the quarter last year, when its profit was $47.1 million, or 87 cents a share.

Reed Hastings, the company’s chief executive, said he was encouraged by the number of new sign-ups for streaming video, the service that he is emphasizing as Netflix’s DVD-by-mail service shrinks. In a letter to investors, he and the company’s chief financial officer, David Wells, called Netflix a “global Internet TV network,” reflecting the growing importance of TV shows to a company that started as a distributor of movies on DVD. Netflix is also beginning to make its own shows, in much the same way that HBO and Showtime do.

The fourth quarter was the first full quarter since a price increase and a bungled — and later abandoned — plan to spin off its DVD-by-mail service hurt the company’s reputation and decimated its stock price. It lost about 800,000 subscribers in the United States in the third quarter, leveling off at 23.8 million; at the end of the fourth quarter, it had 24.4 million, somewhat more than it had expected to have.

Investors welcomed these signs of recovery, sending the stock up about 15 percent in after-hours trading on Wednesday, after ending regular trading at $95.04. The stock, which plummeted from $300 to well under $100 last summer and fall, has rebounded about 30 percent in the last few weeks.

Of those 24.4 million subscribers in the United States, 21.7 million have the streaming service, and 11.2 million have the DVD service. (Many have both.) Netflix expects to gain 1.7 million streaming subscribers in the first quarter of this year, and lose 1.5 million from the DVD service.

“The truth is, the DVD business is going to see declines no matter what we do,” said Ted Sarandos, Netflix’s chief content officer, at a TV conference in Miami on Tuesday. As evidence, he pointed to a recent agreement between Netflix and Warner Brothers that will further delay the availability of DVDs to Netflix subscribers.

Warner succeeded in doubling the length of time that Netflix waits to receive DVDs after they go on sale at stores, to 56 days, from 28 days previously. When asked about the agreement, Mr. Sarandos said that the confusion that DVD delays cause consumers “ultimately may be a net negative for the DVD service.”

Not that Netflix is overly concerned about DVDs. Its future, it says, is in streaming; Mr. Hastings said on a conference call Wednesday evening that the company has no plans to market the DVD service this year.

Netflix has 1.9 million streaming subscribers in other countries now, mostly in Canada; it is also starting to gain subscribers in Latin America, Britain and Ireland.

Increased investments in those new markets is expected to cause modest losses through this year, the company predicted. Mr. Hastings and Mr. Wells said in their letter Wednesday that “until we achieve our goal of returning to global profitability, we do not intend to launch additional international markets.”

Article source: http://feeds.nytimes.com/click.phdo?i=e24560aa14f44a72848badf5ceed1e80