April 23, 2012 | by Andrew Kameka
Netflix announced its Q1 2012 earnings today, generating $870 million for a reported $5 million net loss on the quarter. Though revenue was not as bad as some analysts had predicted, the company continues to turn around last year’s poor handling of higher prices, expired content deals, and a failed attempt to split Netflix into two companies focused on streaming or DVD rentals.
Netflix can take small comfort in knowing that it added nearly 3 million net customers to its streaming business, bringing the current total of streaming customers to more than 26.5 million subscribers.
Streaming on almost every device, from computer to set top box to tablet and phone, plays a large role in Netflix’s appeal. CEO Reed Hastings declined to reveal mobile usage numbers because of competitive reasons, but another Netflix executive interjected to say this about mobile support:
“It’s not a big acquisition driver, but it is a big value driver…People who utilize [Netflix] a lot of devices tend to utilize a lot of hours.”
In other words, people don’t join Neflix because of mobile support, but their usage of the service does increase because of it. That’s why Netflix has invested in appearing on as many devices as possible, a critical step in rehabbing its brand image and fighting back against a growing list of competitors.
Netflix is troubled by competition from other online streaming services like Hulu and Amazon Prime. As more cable providers offer on-demand viewing in their mobile apps and televisions, things are getting even tighter.
“We see the biggest long-term competition for viewing hours from [traditional TV providers] through their TV Everywhere offerings..Given the superiority of our content selection, user interfaces and device ubiquity, we don’t currently see any meaningful near-term impact on our business from these developments.”
Near-term is an important distinction. Mobile consumption of movies and TV shows is trending upwards, which is why cable/satellite providers and individual broadcasters are trying to offer customers more viewing options. Netflix flourished because it provided a single place and price to consume a large library of content across platforms, but also because it faced no serious competition in the TV everywhere space. Now, Comcast has Streampix bundled into its highest tier service, HBO Go has its entire library – which isn’t and probably never will be available in Netflix – streaming on its app, and Hulu has fresher choices. That is very much a long-term threat, and having a better app isn’t going to make much of a difference if people can get plenty of video options for equal price (or free in many cases).
International expansion may be Netflix’s saving grace. Netflix debuted in Canada last year, and launching in the UK and Ireland yielded “the highest net additions we’ve ever seen in the first 90 days of an international market launch.” There’s competition in Europe from Lovefilm, but Netflix’s mix of deals for TV shows produced locally and in the U.S. is viewed as an advantage of the company. Meanwhile, Canada has already proven profitable three months sooner than expected, and infrastructure challenges in Latin America will make it “take longer than we initially though” to turn a profit in the region.
During the earnings call, Hastings promised to continue to be “aggressive” in improving streaming options on Netflix. Fighting against the perception that most of its library is of outdated movies and television shows users don’t want to watch, the company is investing in exclusive syndication deals and original content. Netflix is the only streaming service that can get you caught up on Mad Men, and it will be the only place you’ll be able to see the upcoming return of Arrested Development. Will that be enough to reignite Netflix customers to return to the ranks of paying subscribers?