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Netflix Q3 Shines, Subs Total Nearly 17 Million

20 Oct, 2010 By: Erik Gruenwedel

Netflix once again proved itself a recession-proof juggernaut, posting more 16.9 million monthly subscribers for the third quarter (ended Sept. 30).

Net income reached $38 million, compared with income of $30 million during the previous-year period. Revenue topped $553 million, up 31% from $423 million last year.

The subscriber base — up 52% from the previous-year period — marked the fourth consecutive month the Los Gatos, Calif.-based online disc rental pioneer has grown quarterly subscribers by more than 1 million.

Netflix added 1.9 million net subscribers in the period, compared with 510,000 last year.

“This growth is clearly driven by the strength of our streaming offering,” said co-founder and CEO Reed Hastings, in a statement. “In fact, by every measure, we are now primarily a streaming company that also offers DVD-by-mail. At the same time, the introduction of our streaming offering in Canada in late September has provided us with very encouraging signs regarding the potential for the Netflix service internationally.”

Indeed, the percentage of subscribers who streamed more than 15 minutes of a TV episode or movie in the quarter reached 66%, compared with 41% for the same period of 2009 and 61% for the second quarter.  

Netflix said its subscribers in the fourth quarter would watch more streamed content than delivered on DVD. With that transition from mostly DVD to predominantly streaming, Netflix said this would be the last quarter it reports this metric.

In the company’s question-and-answer session, Michael Pachter, analyst with Wedbush Securities in Los Angeles, questioned data provided by Netflix that claimed over half of all monthly hours consumed by subscribers were spent streaming.

Hastings said the disclosure came down to mathematics and was based on tracking how many discs were shipped and for how long. Then an assumption was made that each disc was watched once.

“Some are never watched and some are watched twice, but we assume watched once,” he said.

Then Netflix analyzed the streaming hours delivered monthly and compared those with discs. Hastings said it was determined that the total number of minutes of entertainment delivered by Netflix was higher for streaming than disc. Second, a majority of members (more than 50% in the current fourth quarter) are watching a majority of their content (by minutes) by streaming than on disc.

“It’s not that 10% of the streamers are watching an enormous amount of content and everyone else is [watching] majority disc,” Hastings said. “So, from a subscriber view, a majority consumes a majority of its content by streaming than disc.”


Hastings declined to disclose the number of subscribers to its nascent streaming-only service in Canada, except to say the service was meeting expectations and would be profitable by the end of 2011.

The CEO said that despite Netflix streaming being available on more than 200 consumer electronics devices, most consumers stream to their TV or PC, compared with a cell phone.

“Mobile usage is relatively modest,” Hastings said, adding that the increasing inclusion of Wi-Fi connected televisions remains the biggest change in consumer electronics.

When asked whether the number of subscribers who rent Blu-ray Disc titles has increased or declined, Hastings demurred, saying high-definition packaged media format usage remains relatively flat.

“lt’s a nice piece of business for us,” Hastings said, adding that DVD/Blu-ray shipments actually increased 10% in select regions.

Despite the hype surrounding streaming, Hastings said it would take a drop of more than 50% in volume shipments at one of its nationwide distribution centers to trigger its closure.

“That is many, many years out,” he said.

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