February 23, 2024

Netflix’s Profit Rises Amid a Rush to On-Demand

“It took us four years to get to 3.3 million subscribers,” Reed Hastings, the company’s chief executive, said in an interview Monday evening. “Now we did it in one quarter.”

Mr. Hastings said the online streaming business “is just racing ahead.” But earlier in the day, in a letter to shareholders, the company cautioned that its torrid pace of growth might be tempered in the months ahead. It said it expected to add 1.2 million to 2 million subscribers in the next three months. Netflix shares declined about 5 percent in after-hours trading.

Although some analysts were disappointed by Netflix’s outlook for the second quarter, its results in the first quarter were generally above expectations. At the end of the first quarter, Netflix had 22.8 million subscribers in the United States, giving it as big a footprint as the biggest American cable operator, Comcast, which reported 22.8 million subscribers at the end of last year.

That subscriber milestone was the best proof to date that Netflix has responded more quickly and more effectively than any other media company to customers’ demands for video-on-demand. Yet the milestone is largely symbolic because Comcast and Netflix do not directly compete; Comcast is available only in certain parts of the country, and Netflix is largely supplemental to the services provided by cable and satellite operators.

Still, the comparisons made by analysts underscored just how fast Netflix has picked up customers. Two years ago, it had 10 million customers and was largely a DVD-by-mail service; today it is a force in video streaming.

Netflix said in a letter to shareholders that it had benefited from a “virtuous cycle” of “increased investment in streaming content, strong word of mouth and an expanding device ecosystem.” (The service is often connected to devices like video game consoles and Internet-ready television sets, which have rapidly proliferated and have driven Netflix’s subscriber growth.) It reported worldwide revenue of $719 million for the quarter, up 46 percent over the same period last year, and $60 million in net income, up 88 percent over the same period last year.

Netflix’s streaming service costs $7.99 a month. To keep customers paying for unlimited access to its library of films and TV shows, Netflix must maintain its own access to that content. Last month, it announced that it had bought the exclusive rights to a show, “House of Cards,” that Media Rights Capital is producing. This month it paid Lionsgate for the rights to stream archived seasons of the AMC series “Mad Men” and paid Twentieth Century Fox for the rights to the Fox series “Glee,” among others.

But at the same time, the pay cable channels Starz and Showtime are becoming more restrictive about Netflix’s access to their content. Netflix is trying to make the case that its streaming deals benefit all players because when users watch past seasons of shows, they are then more likely to watch current seasons shown by a cable provider or broadcaster. “We hope over time that HBO and Showtime will let us prove this proposition for them,” the company wrote in the shareholder letter.

Referring to its licensing of “House of Cards,” Netflix wrote that it would seek two or three “similar, but smaller deals” for exclusive content.

Mr. Hastings said having shows like “Glee” and, “House of Cards” would “continue to help us get more subscribers, which then helps us to afford to license more content.”

So far, Netflix is the only major player in the online-only video subscription business, but others are playing catch-up. Some cable and satellite operators are bragging about their own video streaming options: last week, for instance, when the Dish Network introduced HBO’s streaming service, HBO Go, it promoted movies that were “not offered by Netflix’s online service.” HBO Go requires an existing subscription to HBO through a cable or satellite operator, so Netflix does not consider it a direct competitor.

But Mr. Hastings acknowledged Monday that “there will be a number of substantial competitors” in the online streaming space in the future. One competitor, he said, could be the Dish Network, which bought the bankrupt Blockbuster in a bid valued at $228 million in cash this month. Analysts immediately suggested that a war between Netflix and Blockbuster could be brewing.

Netflix wrote to shareholders on Monday, “Our competitive strategy relative to other streaming services is simply to grow as fast as we can, so we can afford more content, more marketing, and more RD than our competitors.”

Article source: http://feeds.nytimes.com/click.phdo?i=ac57d46a2079c20cfa148e388ac9f272

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