Netflix Blu-ray adoption quicker than expected

Company boosts marketing spend, citing 'remarkably strong' quarter

By Danny King -- Video Business, 12/9/2008

DEC. 9 | Netflix chief financial officer Barry McCarthy said today that the company's subscribers have added the option of receiving Blu-ray Disc titles at a quicker rate than Netflix forecast in October.

McCarthy added that revenue gains amid the U.S. economic slump have allowed the company to spend more on marketing than it forecast.

Speaking at the UBS Global Media and Communications Conference, McCarthy said Netflix already surpassed its year-end goal of having 500,000 subscribers pay an extra $1 a month for the option of renting Blu-ray titles. The company expects to have about 9 million total subscribers by the end of the year.

Separately, Netflix chief content officer Ted Sarandos, speaking in Los Angeles on Monday, confirmed the 500,000 Blu-ray subscribers and said the retailer will promote Blu-ray inside its mailing envelopes next year.

Possibly benefiting from a U.S. economic slowdown that has likely forced many customers to go out less frequently for entertainment, Netflix reported that it has had better fourth-quarter sales than it expected, allowing the largest U.S. movie-rental service via mail to spend about 20% more on marketing than it had planned.

In addition to providing the Blu-ray option, the company has focused on boosting subscribers by making its inventory of more than 12,000 video-streaming titles available for TV viewing through components such as TiVo digital video recorders and Samsung Blu-ray Disc players.

"The economy has been very much our friend. We've had a remarkably strong quarter," said McCarthy. "There's no downward migration of price points by existing customers."

McCarthy also said he expected competitors such as Amazon.com and Apple to try to boost sales from digital titles by offering flat-priced monthly subscriptions similar to Netflix in addition to their pay-per-view options.

He went on to praise the recent financial results achieved by Blockbuster, the largest U.S. movie-rental chain, noting that the company's new leadership "under the circumstances has managed their turnaround extremely well." Blockbuster has been expanding its digital-download service while boosting revenue per store visitor by selling more videogames.