Netflix Q4 beats Wall Street expectations but HBO GO looms

Michelle Clancy ©RapidTVNews | 26-01-2012

Despite Wall Street nervousness as to subscriber totals, Netflix turned in revenue results for Q42011 that show its base is growing again after the well-documented subscriber drain it saw in Q3.

The streaming video and DVD-by-mail provider added a respectable 610,000 U.S. customers, including 220,000 new domestic streaming subscriptions, bringing its year-end subscriber total to 21.67 million customers. That's still shy of its 24-million high water mark, but investors still pushed the stock higher by 10% on the news.
Also giving the company wings on Wall Street were the earnings themselves: the company brought in $876 million in global revenue, a significant leapfrogging of the $857 million that analysts expected.
In Q3 it lost 810,000 customers following a 60% rate increase on its joint DVD-streaming rate. The customer backlash carried over to social media and mainstream news outlets, prompting an e-mailed Mea Culpa from CEO Reed Hastings to subscribers for handling the price hike so poorly. But that wasn't enough to prevent a staggering almost-73% loss in share price.
Now, "we are encouraged by the strength in acquisition that we are seeing, coupled with continued improvements in retention among our domestic streaming members," Netflix CEO Reed Hastings and CFO David Wells wrote in a letter to shareholders.
The international streaming business showed growth as well--the company in recent months launched service in Canada, the Caribbean and Latin America, and Britain. It netted 380,000 new customers in Q4, bringing its total international subscriber base to 1.86 million subscriptions, with Canada accounting for most of them. Latin America, while it shows great promise, has not yet become the cash cow the company had hoped it would give the rate of broadband penetration in that region.
"Low device penetration, high piracy, varying preferences for subtitles, and relatively low credit card usage for e-commerce [are challenges]," Hastings and Wells wrote.
As is getting the content mix right. "We are quickly learning what content works best in the region, and are adjusting our content library accordingly," the letter said.
Domestically, the company did warn of trying times ahead despite the good Q4 news. For one, the brick-and-mortar DVD-by-mail business continued to decline for the company, losing 2.76 million DVD customers in the three-month period. That leaves Netflix with just 11.17 million members who subscribe to the DVD package.
Also, Hulu Plus and Amazon Prime are shaping up to be big competitors, and Amazon will soon launch a streaming-only service "at a a price less than ours," Hastings cautioned.
To boot, the trend of content companies launching their own TV Everywhere streaming services continues apace: and the company has its eye on it as it develops, especially when it comes to HBO GO, the tablet and smartphone app that allows subscribers to stream premium content anywhere. HBO and Starz are two notable examples of content companies that are not making a deal with Netflix to stream their shows, making these types of propositions much more of a threat to the over-the-top player.
"HBO has some great content, particularly their original series, but today for most people it is locked behind a linear interface, or at best, behind a DVR interface and in all cases tethered to a linear subscription plan," executives noted. "As HBO GO grows and becomes the primary way that consumers experience HBO, it will become a much more effective competitor for viewing time. Similarly, Showtime’s TV Everywhere application is very impressive and just starting to gain traction."