Profit up 39% in 2010 as more sign on for streaming only
In reporting its full-year financial results Wednesday, Netflix underscored why it has made such a splash in showbiz during the past year.The company said it surpassed 20 million subscribers in 2010, with a third of new customers signing up for its streaming-only service introduced in November. Revenues grew 29% last year by to $2.17 billion, and profits rose 39% to $161 million. Netflix CEO Reed Hastings and chief financial officer David Wells said the company is focused on growing its streaming business, in the U.S. and around the world, by acquiring more high-end content. At the same time, the execs stressed that Netflix is not getting out of the disc biz entirely. “If Blockbuster liquidates this year, like Movie Gallery did last year, we may see a modest boost in shipments, but we think the bulk of the remaining videostore customers will tend to visit kiosks for $1-a-day DVDs, and they will get streaming from Netflix,” the executives wrote to shareholders in a letter. “Even though we expect DVD shipments to decline this year, we want to be clear that we intend to continue to offer great DVD-by-mail service for many years to come.” Execs stressed the importance of international growth. While only in the U.S. and Canada now, Hastings told analysts he envisions the company growing “country by country” in 2012 and 2013. When asked during the earnings Q&A whether it made sense for Netflix to acquire a studio, Hastings said it is “quite unlikely” and that Netflix is “better off letting other people take creative risks.” The execs also said they would move away from measuring their business in terms of households and focus more on individuals. “Online streaming video, however, is more naturally individual, since it is watched on personal screens like phones, tablets and laptops, as well as on shared largescreen televisions,” Hastings and Wells wrote. “Our long-term goal is to evolve the Netflix service so that it feels more natural to have a personal account. Our $7.99-per-month plan is for one stream at a time, and later this year we’ll be able to offer consumers some account options to watch multiple simultaneous streams. In addition, we’re working on an extensive Facebook integration, which will further the notion of a personal Netflix account.” Netflix said its streaming service is viewed more on Apple TV than iPads, a surprise considering there are just 1 million Apple TV boxes in consumers’ homes vs. more than 15 million iPads in the market. Netflix tacked on 7.7 million subscribers last year and said it expects to add more than 2 million in the U.S. and globally in the first quarter of this year. It declined to give guidance on sub growth for all of 2011, but some analysts project subscribers could number more than 27 million by the end of year. That would make Netflix second only to the big four wireless carriers in terms of having the largest U.S. subscriber biz. At 27 million, Netflix would surpass Comcast’s video business and AARP magazine; both count about 23 million paying customers. Netflix reported its numbers after the market close. Earlier, its stock closed down $3.71 to $183.03. As it signed on new rights deals from programmers, Netflix’s operating expenses last year rose 31% to $522 million. On renewing its streaming deal with Starz, which is a major supplier of movies to Netflix, execs would say only that the deal doesn’t expire until the middle of the first quarter in 2012 and that there is plenty of time to negotiate. Netflix reportedly pays Starz $30 million a year, a paltry sum compared to its five-year, nearly $1 billion deal with pay cabler startup Epix. When asked if it is getting more difficult to acquire content from the major Hollywood studios, Wells said to the contrary Netflix has more money to spend on rights deals. He said it is less likely going forward that Netflix would strike exclusive deals for content but would look to share windows with other distributors, allowing content providers to make even more money. On criticisms from existing aggregators of content that Netflix is jacking up the price for TV shows and pics, Hastings and Wells likened their company’s role to that played 20 years ago by Fox in relation to the Big Three broadcasters — a spur in the side of more established players to become more competitive and innovative. “Netflix is good for consumers, good for content producers, and it is one more competitor to existing aggregators,” the execs said. When asked during the Q&A whether he viewed cable operators as friends or foes, Hastings said on the broadband business side, he viewed cable as partners. On the video side, he added, “We are sort of tolerated” by the cable providers, who worry about cord cutting in favor of such streaming services as Netflix and Hulu. He said it was easy to see why they have no interest in seeing Netflix grow. On potential risks to its business, execs suggested the growth of so-called TV Everywhere online vid services from cable operators could hurt, as could broadband-provider implementation of plans to charge subscribers for bandwidth use. Prodded to comment on recent barbs about Netflix from Time Warner CEO Jeff Bewkes, who recently told the New York Times that the threat of Netflix to Hollywood is akin to the risk of the Albanian army taking over the world, Hastings blamed the press for blowing the criticism out of proportion, adding that Netflix is a $100 million-a-year customer of Time Warner’s Warner Bros. studio and that he would like to grow that relationship. Separately, Netflix also confirmed it has tapped Disney PR exec Jonathan Friedland for a corporate communications post. Friedland had been with Disney since 2006.