Co. hits 23.6 mil overall subscribers
Now that Netflix has pulled even with cabler Comcast and surpassed satellite radio service Sirius XM as the largest subscription-based entertainment company, the rental firm is ready to pony up as much as $2 billion next year to lock down streaming rights to more movies and TV shows.
Analysts from Wedbush Morgan Securities and Lazard Capital Markets expect Netflix to continue its spending spree as it tries to fend off such growing rivals as Hulu Plus, Amazon Prime and a potential Blockbuster- branded service from Dish Network looking to grow similar streaming businesses.
Last week, Wedbush’s Michael Pachter predicted Netflix could spend as much as $500 million for streaming rights this year alone. Hollywood studios and networks are demanding higher fees as current deals expire and companies look for the kind of rich terms Netflix is paying other content owners.
Netflix toppers Reed Hastings and chief financial officer David Wells didn’t deny the plans while reporting Q1 earnings 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 R&D than our competitors,” the two wrote in a letter to shareholders, stressing that such content deals are typically paid for over several years.
Netflix now boasts more than 17,000 movie and TV shows that it offers digitally.
New content deals helped the company add 3.3 million subscribers in the U.S., and 290,000 more in Canada, during the first three months of 2011 to help it reach 23.6 million subs overall. It now has 22.8 million customers in the U.S. Analysts expect its total subs count to grow to 30 million by the end of the year.
Comparably, Netflix added 1.7 million subs during the first quarter of 2010.
The considerable uptick in members helped Netflix post better-than-expected first quarter results Monday, reporting a 46% boost in sales of $719 million and profits of $60 million, up 88% over the same period a year ago.
Earlier this year, Comcast reported 22.8 million subs, while Sirius XM counted 20.2 million. Comcast reports its Q1 results on May 3, dislosing more current subs numbers.
Netflix is eager to continue fueling its rapid growth through new content deals that should appeal to customers signing up for its $8 monthly streaming plan.
Recent deals with CBS, Fox and Lionsgate have expanded its TV menu to include fare such as “Glee,” “Sons of Anarchy,” “Mad Men,” “Weeds,” “Ally McBeal,” “Frasier,” “Cheers,” “Twin Peaks,” “Star Trek” and “The Twilight Zone.”
Company also brokered a rich licensing pact to secure the first-run rights to Media Rights Capital’s remake of the BBC drama “House of Cards,” with Kevin Spacey attached to star and David Fincher to helm the 26-episode series, set to bow sometime in 2012.
Netflix declined to disclose just how much it is paying for the rights to the series, but it’s far less than the $100 million that has been previously reported. Instead, company will pay a small percentage of the budget for the show that MRC will deficit finance.
Company wants to acquire the first window for two to three additional series, but wouldn’t spend as much money as it did for “House of Cards,” “so we can gain confidence that whatever results we achieve are repeatable,” Hastings wrote in the shareholder letter. Decision for “House of Cards” “was driven by a desire to test a new licensing model using a small portion of our content budget,” rather than “a shift in strategy towards original programming,” he added.
Netflix is now available on more than 250 devices (including TVs, Blu-ray players, videogame consoles and tablets like Apple’s iPad), most of which connect to the Internet. Because of that 61% of video viewed online is already streamed through Netflix, research firm NPD estimates.
That should only continue to grow, with 123 million connected TVs expected to ship in 2014, according to a study by DisplaySearch. Nearly 20% of all TVs shipped worldwide in 2010 had Web capabilities, the company said.
Hastings and Wells cautioned that the company isn’t looking to turn into a rival to cablers, but rather operate as a player of “rerun TV,” with older seasons of shows helping boost the viewership for new episodes.
“Our focus for TV shows is on prior season TV and completeness of series, because this class of content enables us to license content broadly and provide consumers a differentiated experience,” the two wrote.
Moving forward, company has its sights set on expanding overseas in other markets this year after having branched out in Canada, its first foreign territory, which should grow to 1 million subs by the end of the summer. Netflix expects to lose as much as $75 million, as part of the move.
Company has yet to disclose any new territories, but Netflix execs are said to be eyeing Latin America and Great Britain as possibilities.
Execs also aren’t concerned with the $30 premium VOD window studios launched last week through DirecTV, or rentals the majors have begun offering through Facebook pages.
“We don’t think this (pay-per-view) activity will have a material impact to Netflix’s growth,” Hastings and Wells said. “PPV is a good way for content owners to maximize profits before a title is released for subscription. In PPV, the brand is the individual piece of content, a very different model from the subscription business.”