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Netflix Posts First International Profit Despite Sub Growth Decline

17 Apr, 2017 By: Erik Gruenwedel

Global subscriber additions drop 26%

Despite a downturn in subscriber growth, Netflix April 17 reported a $43 million contribution profit from international operations in the first quarter (ended March 31) — the first profitable quarter internationally for the subscription streaming video pioneer.

Netflix added 4.95 million subscribers globally, down more than 26% from 6.74 million new subscribers during the previous-year period. The service ended the period with 98.75 million members, compared with 81.5 million a year earlier.

The service added 1.42 million domestic subs, down 35% from 2.23 million subs a year earlier. It added 3.53 million internationally, down more than 21% from 4.51 million new subs a year ago.

Netflix generated $178 million profit on revenue of $2.6 billion, compared to income of $28 million on revenue of $1.9 billion a year ago.

In a shareholder letter, CEO Reed Hastings and CFO David Wells dismissed the variances in subscriber growth as “mostly noise” due in part to Netflix’s global rollout (adding 130 countries) during the previous-year quarter and negligible impact on the long-term growth trends in Internet TV.

Indeed, Netflix expects to add 8.15 million net sub adds through June 30, compared with 8.42 million net adds during the same period last year.

To assuage subscriber concerns, Netflix said it would spend more than $1 billion marketing original content in 2017 through so-called “programmatic advertising." The SVOD pioneer early this month participated in Comcast’s annual “Watchathon” on-demand promotion.

Hastings and Wells dismissed concerns about upstart online TV services, contending the platforms represent a subset of live ad-supported pay-TV.

“Our focus is on on-demand, commercial-free viewing. We don’t think [online TV] will have much of an impact on us as Netflix is largely complementary to pay-TV packages,” they wrote.

The executives also called out Amazon for investing $50 million in NFL Thursday Night Football, a move they characterized as “not … smart.” 

“We believe we can earn more viewing and satisfaction from spending that money on movies and TV shows,” Hastings and Wells wrote.

Finally, Netflix generated 54% of total income ($60.1 million) from its legacy DVD by-mail rental business, compared with 49.5% a year ago. Revenue topped $120 million, down 17% from $144 million a year ago. Subscribers topped 3.9 million, compared with 4.7 million a year ago.


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