Netflix quarterly results blew the roof off. It has clearly moved from being a DVD rental operation to an online streaming service. The results speak for themselves; 31% growth in revenue to $553 million; 1.93 million new subs in the quarter, up 52% from the 1.03 million gain in the prior quarter. It now has a total of 16.9 million subscribers and 66% of subscribers have streamed content online, an increase over the prior quarter.
During the next quarter the majority of members will watch more of its video streams than it delivers on DVD, said Netflix and it increased its year-end subscriber forecast to 19.7 million, up from its prior forecast of 18.5 million
Netflix CEO Reed Hastings said in a statement, “This growth is clearly driven by the strength of our streaming offering. In fact, by every measure, we are now primarily a streaming company that also offers DVD-by-mail.”
Netflix is undoubtedly helped by the millions of TV sets and Blu-ray players that come with its Watch Now online service. Add to that millions of Apple TVs, Google TV sets, Xbox 360s, Wiis, PlayStations and digital media adapters that also have the Netflix service a click away.
Its $8.99 monthly rate is a no-brainer for consumers that are paying upwards of $100 for pay-TV. The only thing holding Netflix back is the studios, which have prevented Netflix from airing newer hit movies. As Netflix adds subscribers, the studios’ defenses will weaken just as Apple did with the record labels. Netflix recently added shows from Epix and Relativity Media. The Epix deal cost Netflix $1 billion and gives it access to about 1,000 new titles from Paramount, MGM and Lionsgate. It recently renewed its deal with NBC Universal.
Netflix’ streaming library has increased to about 115,000 titles. Last month Netflix started a streaming-only service in Canada and has no plans to build a string of warehouses to ship DVDs. It is spending $600 million per year in the States on mailing costs.
From time-to-time Hastings has hinted about a streaming-only service in the States, which could be less expensive than the current $8.99 rate. “If our results [in Canada] are as strong as we think they will be, then we will look to start this offering later in this Q4,” Hastings said.
The only reason that Netflix cannot offer its streaming service in every country is that it has to get the distribution rights from the content owners.
Netflix’ untapped market also includes 14 to 24 million US homes that don’t yet have broadband but seem certain to at some point.
Hastings keeps saying that Netflix subscribers aren’t cancelling their pay-TV service. However, consumers are being lured by the online services like Netflix, Google TV and Apple TV, which both offer Netflix, Amazon and the CinemaNow service that Roxio and Best Buy offer.
The popularity of iPads, and perhaps soon more 10-inch tablets for watching online videos, will also have an impact. For that reason, the pay-TV services will soon begin offering home-based tablets so that subscribers can watch their pay-TV service on them.
Netflix has wiped out many of the DVD rental stores like Blockbuster. It appears now it’ll do the same to DVDs. The only thing that will prevent that is Blu-ray, which offers higher screen resolution, 3D and added content.
Wall Street loves Netflix too. Its share price has tripled this year.