Netflix’s subscriber gains — an improvement over last year’s performance during what is traditionally its weakest quarter of the year — and overall profits were well within projections, but some investors, hoping for more, sent the stock down about 8 percent in after-hours trading before rebounding somewhat. That result alludes to one of the challenges Netflix faces: maintaining the enthusiasm of both investors and subscribers to its video-streaming services.
Looking ahead, Netflix projected that it would add 690,000 to 1.49 million subscribers in the United States in the third quarter, continuing a growth trajectory that has made it one of the most closely tracked companies in the media and technology industries. Analysts say that Reed Hastings, Netflix’s chief executive, and his colleagues are under pressure to prove that they can keep adding members to what feels more and more like a Netflix club, with insiders who can watch the service’s original shows and outsiders who cannot.
On a first-of-its-kind video conference call between Netflix executives and two interviewers on Monday evening, the executives said that the original shows — including “House of Cards,” which was nominated for nine Emmy Awards last week — are only slightly affecting the bottom line now, but will ultimately add significantly to the company’s subscriber totals and revenues.
“If we do it right, these will turn into real franchises,” Mr. Hastings said.
Ted A. Sarandos, the company’s chief content officer, reminded investors that traditional networks like HBO and Showtime worked for many years to gain widespread recognition. In Netflix’s case, he said, “the brand is starting to mean something to viewers, already.”
In the second quarter, Netflix revenue topped $1 billion for only the second time ever, totaling $1.07 billion, in line with analysts’ expectations. Netflix reported earnings of 49 cents a share, beating the consensus expectations for 40 cents a share. It returned to positive cash flow for the first time in a year, because of a one-time decline in payments to content providers and overall profit growth.
Outside the United States, Netflix added 610,000 streaming subscribers in markets like Britain and Brazil. The international business continued to operate at a loss, but it was lower than expected.
“We’re feeling quite good about the business,” Mr. Hastings said during the Google-powered video conference call, which was set up as an alternative to the phone calls that many companies set up on a quarterly basis.
In their quarterly letter to investors, Mr. Hastings and Netflix’s chief financial officer, David Wells, attributed some of the second-quarter subscriber gains to “Arrested,” writing, “This show already had a strong brand and fan base, generating a small but noticeable bump in membership when we released it.” But they cautioned investors not to expect a similar bump from other new shows, like “Orange Is the New Black,” which came onto the service this month. “Other great shows don’t have that noticeable effect in their first season because they are less established,” they wrote.
In a hint of the company’s plans for more original programming, Mr. Hastings and Mr. Wells said Netflix would be expanding to “include broadly appealing feature documentaries and stand-up comedy specials.”
Over all, original shows like “House of Cards” remain just a sliver of subscribers’ viewing; Netflix’s menu of TV shows and films that have already had their premieres elsewhere “accounts for the bulk of viewing and leads to a lot of member enjoyment,” Mr. Hastings and Mr. Wells wrote. They cited a revealing statistic on Monday: three-fourths of the hours streamed on Netflix are spurred by the algorithms that recommend specific shows and movies based on a subscriber’s past viewing.
Sensing industrywide trends that are making hit shows and films cost more to license, Netflix increasingly wants to be known not as a service that has everything people want to watch, but instead has a selection of exclusive shows that cannot be seen anywhere else. In the second quarter, a deal with Viacom’s MTV Networks expired, resulting in the loss of shows like “SpongeBob SquarePants.” Netflix subsequently announced a deal for original programming from DreamWorks Animation.
Michael Pachter, a managing director at Wedbush Securities, who has been a Netflix skeptic, said on Monday that “I think that they probably gained a lot of new subscribers from ‘Arrested Development,’ and probably lost a lot because of the loss of Starz, SpongeBob, James Bond and MTV content.”
He added, “I think that their guidance suggests this will persist, and I’m pessimistic that they will hit the high end of their domestic streaming subscriber growth.”
Article source: http://www.nytimes.com/2013/07/23/business/media/netflix-revenue-tops-1-billion-for-the-quarter.html?partner=rss&emc=rss
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