Hastings urges end to high-def war
UPDATE: Netflix plans public offering of 3.5 million shares
By Jennifer Netherby -- Video Business, 4/27/2006
APRIL 27 | Netflix CEO Reed Hastings encouraged the major studios to make their movies available on both HD DVD and Blu-ray to make consumers feel comfortable buying into high-definition DVD and speed up an end to the potential format war.
“Protracted competition will hurt the adoption of high-definition DVD,” Hastings warned during the company’s first-quarter earnings conference call Monday.
Hastings’ urging comes as Netflix continues its sharp growth curve. Boosted by record subscriber growth, Netflix reported earnings of $4.4 million for the quarter ended March 31, up from a loss of $8.8 million the previous year.
The company had record revenue of $224.1 million, up 47%.
Netflix said Thursday it plans to file with the Securities and Exhange Commission for a public offering of 3.5 million shares that it expects to close in May. Netflix added a record 700,000 net subscribers during the first quarter, bringing total subscribers to 4.86 million. Netflix now expects to close the year with 6.3 million subscribers.
In regard to the next generation introductions, Hastings called on studios to follow the lead of Warner Home Video and Paramount Home Entertainment, which plan to release their movies on both formats, saying it’s a “practical solution” to a format war.
“If all studios were to embrace both formats agnostically, consumers would be more comfortable making a format decision based on hardware pricing and features,” Hastings said.
Hastings predicted a slowdown in disc sales this year as consumers stop buying standard DVDs before they switch to high-def in the coming years. He pointed to videogame sales, which drop just before new game formats are launched. However, he said the blip wouldn’t likely have an affect on the rental market.
Netflix is continuing to focus on growing its subscriber base as it builds on its lead over rival Blockbuster, which Netflix sued for patent infringement earlier this month (VB, 4-4.)
Based on the healthy first-quarter subscriber growth, Netflix upped its revenue expectations for the year to $990 million, lifted from previous guidance of $960 million.
Chief financial officer Barry McCarthy said the company will keep to its earlier earnings forecast of between $29.4 million and $35.4 million and will instead channel any surplus into marketing to continue to drive subscriber growth.
Netflix increased its marketing spend to $52 million during the first quarter in its bid for new subs, up from $36 million spent in first-quarter 2005. Still, the company was able to hold its subscriber acquisition costs relatively steady at $38.47 per subscriber this first quarter vs. $38.68 the previous year.
Hastings said the company would give a time frame for its digital download plans by the end of the year as it readies that service.
Meanwhile, Netflix has continued to test lower prices of its services but hasn’t come to any decisions on new pricing plans, McCarthy said. The company has tested prices as low as $4.99 for one rental a month.
Hastings seemed to hint that the company also could change pricing for high-def disc rentals, saying “high-definition access is free to Netflix subscribers for now.”
The company announced its results after the market closed. Netflix’s stock was up nearly 5% at $32.80 in after hours trading.
