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Netflix Adds 2M-plus Domestic Subs, Tops 48M Subs Globally

21 Apr, 2014 By: Erik Gruenwedel

SVOD pioneer says it will hike monthly prices $1 to $2 for new members only by end of the month; expects current international segment will be profitable this year

Another quarter, more stellar results for Netflix, which ended the first quarter (ended March 31) adding 2.25 million domestic subscribers to a global base of more than 48 million subs (35.7 million in the United States).

Netflix added 1.75 million subs internationally to a base of 11.76 paid members. In a letter to investors, CEO Reed Hastings and CFO David Wells said Netflix's current global operations (Canada, Mexico, Latin America, the United Kingdom and Scandinavia) would become profitable in fiscal 2014.

Indeed, Netflix plans to increase the monthly $7.99 subscription price $1 to $2, depending onthe country, for new members only by the end of the month. Hastings and Wells said a 1€ price hike in Ireland in January had limited impact.

The price hike offers a different strategy than the one taken by Amazon, which increased the annual subscription fee for its Prime Instant Video service by $20 for existing members, while allowing new members to sign up for the old price for a limited time.

With the SVOD service expanding operations globally later this year (possibly into France and Germany), it expects to continue generating operating losses in the near future.

“As we’ve discussed in prior investor letters, we intend to continue our international expansion over the coming years, so our near-term profits will be quite modest as we invest in this large global opportunity,” Hastings and Wells wrote.

In the first quarter, international operations generated an operating loss of $35 million — a substantial improvement from the operating loss of $77 million during the previous-year period.

Netflix generated net income of $53 million on more than a record $1 billion alone in streaming revenue — much of it attributed to the second season debut of “House of Cards.” Notably, Netflix's women's prison dramedy, "Orange os the New Black," remains the service's most popular original programing.

It launches the second season of “New Black” on June 6; and Ricky Gervais series “Derek” May 30.

Notably, while Netflix helped foster the phenomena of binge-watching (more than two episodes of a show in one viewing) in the U.S., the SVOD service said it is forced to restrict access to domestic TV shows abroad to an episode seven days after broadcast in the U.S.

“We are tightening that window to less than seven days, and wherever possible, to within 24 hours. The 'Breaking Bad' spin-off 'Better Call Saul,' as well as 'From Dusk Till Dawn' and 'Fargo,' are among the series premiering on Netflix in international territories,” Hastings and Wells wrote.

Netflix generated operating profit from its by-mail disc rentals service of $98 million — about 50% of domestic streaming operating income. It anticipates $92 million operating income in the second quarter. It ended the quarter with 6.7 million disc subscribers.

Finally, Hastings and Wells reiterated their non-support for Comcast's proposed acquisition of Time Warner Cable. The executives said the union would represent a single ISP controlling 60% of the nation's high-speed Internet.

"Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services … The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls," Hastings and Wells wrote. "For this reason, Netflix opposes this merger."

Indeed, the executives took a shot at AT&T U-verse, which is attempting to extract incremental streaming fees from Netflix, when they revealed the telecom's broadband megabites per second were slower than several less expensive DSL ISPs.

"It is free and easy for AT&T to interconnect directly with Netflix (via its Open Connect CDN) and quickly improve their customers’ experience, should AT&T so desire," Hastings and Wells wrote.

About the Author: Erik Gruenwedel

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