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Netflix Adds 2.3M Domestic Subs, Posts $48M Profit

22 Jan, 2014 By: Erik Gruenwedel

Service rolling out disc mailers touting Netflix’s by-mail heritage

Netflix once again stymied short-sellers with better-than-projected fiscal results.

Netflix Jan. 22 said it added 2.3 million net new domestic streaming subscribers in the fourth quarter (ended Dec. 31), increasing its total to 33.4 million. The service added 1.7 million international subs, bringing its global subscriber count to 44 million.

The Los Gatos, Calif.-based rental service generated net income of $48 million, compared with income of $8 million during the prior-year period. Revenue approached $1.2 billion when factoring in by-mail disc rentals. Netflix generated $945 million in revenue during the same period a year ago.

Netflix announced it ended the quarter with 6.9 million disc (and combined streaming) members. Contribution profit from by-mail rental was around $110 million, which Netflix expects will drop to $98 million in the first quarter due to increased postal rates.

In a letter to investors, CEO Reed Hastings and CFO David Wells said the service would begin using dvd.netflix.com on its disc mailers and on the DVD web pages.

“The dvd.netflix.com logo will feature our iconic envelope in a nod to our DVD-by-mail heritage, representing the huge selection that DVD offers; nearly every movie ever made,” Hastings and Wells wrote.

The executives said Verizon's successful challenge of the U.S. net neutrality rules could be used by competitors to get Netflix to pay fees to stop this degradation.

"Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver," they wrote.

Instead, Hastings and Wells believe ISPs will avoid this "consumer-unfriendly path of discrimination" in order not to galvanize government action. In addition, they said ISPs currently have profitable broadband businesses they want to expand — a scenario that could be jeopardized charging Netflix higher fees.

"ISPs appear to recognize this and many of them are working closely with us and other streaming video services to enable the ISP subscribers to more consistently get the high-quality streaming video consumers desire," they wrote. In the long-term, we think Netflix and consumers are best served by strong network neutrality across all networks, including wireless. To the degree that ISPs adhere to a meaningful voluntary code of conduct, less regulation is warranted. To the degree that some aggressive ISPs start impeding specific data flows, more regulation would clearly be needed."

About the Author: Erik Gruenwedel

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