Netflix subscribers up 25%

Q2 earnings lift 3.8% on growth

By Danny King -- Video Business, 7/25/2008

JULY 25 | Netflix’s second-quarter earnings rose 3.8% as the company boosted subscribers 25% from a year earlier, to 8.41 million as of June 30.

Netflix widened its subscriber base by 21% in the first quarter.

The company's video streaming service, which in May introduced a set-top player to stream content on TVs, was seen as a boon to Netflix's subscriber growth.

“Netflix can compete for a substantially larger customer base, particularly if it offers differentiated products and services,” wrote Wedbush Morgan analyst Michael Pachter in a note to clients earlier this week. “Free streaming video is such a differentiated service, and Netflix can gain a competitive advantage by building an integrated product offering, particularly by partnering to move the Internet connection to the living room.”

In May, CEO Reed Hastings said products such as Netflix Player by Roku, which had to be back-ordered within three weeks of its introduction, would double the company’s subscriber base within a decade.

Netflix didn’t disclose any information today about how many titles have been streamed or how many Roku boxes have been sold.

Netflix also has partnered with Microsoft to allow customers to stream 10,000 movies and TV shows from Netflix's service through Microsoft’s Xbox Live Marketplace on the Xbox 360 videogame console.

Hastings said in May that he hoped that partnerships with various consumer-electronics companies such as Roku would help enable as many as 10 million customers to have TVs that could connect to Netflix via the Internet by the end of next year.

Last week, Amazon.com started beta-testing a video-on-demand streaming service for about 40,000 titles that will replace its 2-year-old Unbox downloading service.

Meanwhile, Blockbuster earlier this week integrated Movielink, the video-download service it bought from the five major studios last year, into Blockbuster.com in a beta-test with limited users. The service offers 5,000 titles, including 4,500 for sell-through and 2,000 for rental. In a statement, Blockbuster said it believes downloading is more reliable and portable than streaming.

Netflix’s second-quarter net income was $26.6 million, or 42¢ a share, up from $25.6 million, or 37¢ a share, a year earlier, as revenue increased 11% to $337.6 million, the company said today. Netflix was expected to earn 40¢ a share on sales of $337.6 million, the average analyst estimate in a Thomson Financial survey.

For the current quarter, Netflix forecasts sales of $343 million to $348 million, compared with an average analyst estimate of $347.2 million.

Earlier this week, Netflix also said it was shutting down its Red Envelope Entertainment film-distribution unit so it could focus more on its DVD and video-streaming distribution.

Netflix started Red Envelope more than two years ago and has distributed about 125 films on DVD. Company spokesman Steve Swasey yesterday declined to say whether the company would release any more independent films on DVD.

Also this week, Netflix began temporarily upgrading the membership status of some subscribers as part of the April 2006 settlement of a 4-year-old class-action lawsuit.