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Netflix Tops 3 Million Subscribers

28 Mar, 2005 By: Erik Gruenwedel

Netflix today said it has surpassed 3 million subscribers, representing an increase of about 400,000 subscribers since the Los Gatos, Calif.-based service posted fiscal 2004 results earlier this month.

A Netflix spokesperson wouldn't comment on a reason for the rise in subscribers, and company CEO and co-founder Reed Hastings, in a statement, attributed the growth to the company's ability to tap into today's consumer lifestyle.

“Reaching the 3-million-member level underscores the fact that we're fundamentally redefining the movie rental experience,” Hastings said.

Midday trading today saw Netflix shares up more than 8 percent, from 73 cents to $9.76, with more than 1.7 million shares traded — about 300,000 shares above average.

Independent retail analyst Dennis McAlpine, with McAlpine Associates in Scarsdale, N.Y., wasn't overwhelmed by Netflix's subscriber growth, which he said was about 100,000 members less than he had expected for the first quarter of 2005.

He said online rental subscriptions typically increase in the first quarter due to the influx of new DVD players into the market following the holidays — a trend McAlpine said is diminishing.

“With 70 percent DVD player market penetration, you are not going to see that many [first-time DVD subscribers],” McAlpine said.

Netflix, which topped 2 million subscribers last May, has been test marketing a $9.99 per month one-movie-out plan to go along with monthly two-movie-out plans for $11.99 (four titles per month limit) and $14.99 (unlimited), respectively.

The service continues to offer an unlimited three-movie-out plan for $17.99 — an option that launched the online rental market in 1999.

McAlpine said Netflix's subscriber growth emphasizes the resilience of the online rental market even with aggressive competition from Blockbuster and, to a lesser extent, Wal-Mart.

He downplayed the significance of the one-movie-out plans from Netflix and Blockbuster as largely promotional gimmicks that don't necessarily satiate typical movie watchers.

“[They] don't work too well, and I'm not even sure that [two-movie-out plans] work well,” McAlpine said. “I'm not sure that $17.99 per month might even be low. If you go to $19.99, you'll probably still get the same subscribers. If you get above $20 per month, there is a decided [psychological] advantage to the lower price point.”

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