January 25, 2005, 12:00 AM

Netflix keeps rivals at bay with 86% rise in 2004 revenue

Despite competition from Blockbuster Inc. and others, Netflix Inc., the pioneer of online DVD rentals, boosted its revenue by 86% in 2004 over 2003, to $506.2 million from $272.2 million, and its number of subscribers by 76% to about 2.61 million.

Kurt Peters

Executive Editor

 

Despite mounting competition from Blockbuster Inc. and others, Netflix Inc., the pioneer of online DVD rentals, boosted revenue by 86% in 2004 over 2003, to $506.2 million from $272.2 million, Netflix reported this week. Q4 revenue rose 77%, and Netflix ended the year with about 2.61 million subscribers, up 76% from 2003.

“We achieved our lowest subscriber churn ever in the fourth quarter, despite intense competition,” said CEO and co-founder Reed Hastings. Netflix expects to continue its growth in both number of subscribers and revenue through new developments such as its “Friends” feature, which lets subscribers share information on personal movie choices.

Safa Rashtchy, an analyst who follows Netflix for Piper Jaffray & Co., said the key driver of Netflix’s performance last year was its 22% drop in its monthly subscription fee, to $17.99 from $21.99. Netflix lowered the fee Nov. 1 out of anticipation of Amazon entering the online DVD rental market, Hastings said at the time.

Although Amazon has since started offering online DVD rentals only through its U.K. web site, it has indicated that the U.S. market is not far behind. Blockbuster, meanwhile, launched its online DVD rental service last summer, then in October lowered its monthly subscription price by 12%, to $17.49. Last month, it increased the pressure on Netflix’s market by virtually doing away with rental late fees at its stores, targeting one of the main values–the absence of late fees-that Hastings hangs on Netflix.

Netflix reported that it served 2.3% of U.S. households as of Dec. 31, up from 1.3% a year earlier. It said subscriber churn reached a record low of 4.4% in Q4, compared to 4.8% in the year-earlier period.

It said 2004 net income more than tripled year-over-year to $20.8 million from $6.5 million, and that Q4 net income more than doubled to $4.8 million from $2.3 million.

 

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