UPDATE, 4:13 PM: Netflix CEO Reed Hastings has some good news for Hollywood: Despite his company’s struggles, he plans to keep spending “aggressively” on content, he told analysts in a conference call. “We have a small fraction of the content that we would like to have.” He pegged the spending rate at “slightly less than revenue growth.” That could include deals like the one Netflix struck with DreamWorks Animation to offer its movies in the premium TV window. Most of the studio deals with channels such as HBO and Starz expire in 2014 and 2014 and “as far as I know, no one else has the right of first refusal.” Hastings also is in the market for original shows. Although “it’s not yet hugely significant” for Netflix, as it adds shows such as House Of Cards — which will debut next year — “it will build to a nice percentage of our total viewing.” Meanwhile, Hastings says he’s pleased with the performance of his exclusive programs. For example, the Norwegian TV drama Lillyhammer, which stars Steven Van Zandt, “was quite successful for the amount we invested in it.” He says that the program licensing deals he’s making now largely are exclusive because “other bidders will not take that content if we also have it, so they’re de facto exclusive.” Although he doesn’t envision having all-exclusive programming, “certainly there’ll be more and more.”
Hastings says that he’s confident that Netflix will add 7M subscribers this year to the 22M it already has — but warns that the numbers could vary by season, and may look soft in the current quarter. Even so “we feel very much that we’re on track.” He noted that there’s a lot of churn from people who turn the service on and off. “Because we only offer a free trial to new members, subscribers who are price sensitive have an incentive to (sign up) under a new email address.” He added that about “20% of people don’t watch much and most of the churn will come from them.” The two main reasons people offer for dropping is that they don’t watch enough, and they can’t afford the service. Still, Hastings says he isn’t considering dropping the $7.99-a-month price. It means that “we can get lots and lots of content for our subscribers.” People who rent DVDs from Netflix don’t bail as frequently as streaming-only customers do. But Hastings says the retention rate should improve as the company develops a larger core of long-term subscribers. Still, he expects competition to intensify — including from a stand-alone streaming offering from Amazon, which now offers programming to customers who pay for its Prime service. “Our understanding is that it will happen, yes.” Hastings also continued his attack on Comcast for offering unlimited Xfinity VOD transmissions to its subscribers who use the Xbox in place of a cable set top box — while Internet services are subject to a data usage cap. Comcast says it’s not a net neutrality issue because it uses its cable video service, not the Internet, to transmit the programming. But Hastings says “we’re broadly socializing the idea of what’s neutral and what’s not” and that a cap “should be applied equally or not at all.” Despite all of the attention to streaming, the CEO told analysts not to count on Netflix selling its DVD rental business. “No, we’re not thinking of that,” Hastings says.
PREVIOUS, 1:11 PM: Shares of Netfllix are down about 15% in after-hours trading right now after the company reported revenue of $870 million and lost 8 cents a share in the first quarter. Analysts had expected revenue of $867 million and a 27 cents per-share loss, but the second-quarter guidance of greater losses has investors spooked. Netflix gained a net 1.74 million streaming-only customers during the quarter while losing about 1 million DVD subscribers, those figures coming after Netflix’s botched move to separate its online and physical businesses. That started a wild decline that saw the rental service lose 62.5% of its market value in 2011. The company is fully bullish on its future, though, saying in its release announcing the numbers: “We anticipate returning to global profitability in Q2, and plan to launch our next international market in Q4.” It did not say what market that might be; it already has operations in the UK and Ireland, Canada, and slow-starting Latin America. It will be interesting how the company interprets the quarterly numbers during its conference call in a couple of hours. Stay tuned.
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