Netflix to hike Blu-ray rental price

Reports record Q1 subscriber growth

By Jennifer Netherby -- Video Business, 4/21/2008

APRIL 21 | Netflix will begin charging a premium to subscribers who rent Blu-ray Discs sometime this year, CEO Reed Hastings said during the company’s first-quarter earnings conference call today.

Hastings said the increase would be modest and blamed it on the higher wholesale prices on Blu-ray compared to DVD. The company expects the percentage of subscribers who rent Blu-ray to stay in the single digits this year, he said.

The talk of raising prices came as Netflix reported record first-quarter subscriber growth due to competitor Blockbuster’s price hike late last year.

For the first quarter ended March 31, Netflix earnings jumped 36% to $13.4 million. Revenue was up 7% to $326.2 million.

Netflix netted 764,000 new members in the quarter, more than 50% more subscribers than it added in fourth-quarter 2007 or the previous first quarter. The company closed the quarter with 8.2 million subscribers.

The company attributed its strong growth to Blockbuster’s December price hike on its Total Access plan and said it doesn’t expect to see the same record growth in the second quarter or for 2008.

Subscriber acquisition costs were just below $30 for new subscribers in the quarter, down from $47.46 the previous first quarter. Churn, or the percentage of subscribers leaving the service, was down to a record low 3.9%.

Despite the strong results, the company lowered its full-year earnings forecast by a penny, to a range of $1.16 to $1.29 for the year. The lowered forecast led to a 12% drop in the company’s stock price to $34.45 in after-hours trading.

Netflix chief financial officer Barry McCarthy attributed the lowered forecast to the company’s planned investment in its Instant Viewing Internet streaming service.

Hastings announced during the earnings call that Netflix has signed deals with three more consumer electronics companies to deliver Instant Viewing to set-top boxes for easy TV playback. Hastings didn’t name the companies but said two are major manufacturers that will include the capability to watch Internet-streamed movies from Netflix in various set-top devices. In February, rumors started that Netflix would partner with Microsoft to deliver movies through the Xbox Live service, but company execs didn’t mention the software giant during Monday’s call.

Hastings said the company wants its service integrated into Blu-ray players, videogame consoles, Internet-connected TVs and other set-top devices. Netflix already has a deal with LG Electronics to introduce a set-top box later this year that will play streamed movies from Netflix on the TV.

Hastings said these partnerships aren’t likely to result in meaningful profits in the foreseeable future.

Netflix now streams 9,000 movies and TV shows online through its Web site.

Asked about the Blockbuster’s bid to buy Circuit City, Hastings said it’s too early to say how that would impact Netflix.

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