April 22, 2013, 4:48 PM

Original content boosts Netflix

Netflix added more than 3 million subscribers in Q1.

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Netflix Inc., the online retailer that provides entertainment via mailed DVDs and streaming video, raised its subscriber count by more than three million in the first quarter, the company reported today. More than two million of those subscribers are in the United States, which Netflix in part credits to the success of the 13-episode original series “House of Cards” that it released in February.

What’s more, the consumers who watched that series mostly stayed with Netflix. Fewer than 8,000 signed up for the $7.99 per month unlimited streaming service, watched the show and canceled, Netflix reports, seeking to counter investors’ concerns that the series would not draw enough new subscriptions to be profitable.

“The global viewing and high level of engagement with the show increased our confidence in our ability to pick shows Netflix members will embrace and to pick partners skilled at delivering a great series,” CEO Reed Hastings and chief financial officer David Wells wrote in a letter to investors released with the quarterly earnings report. “The high level of viewer satisfaction implies we are able to target the right audience without the benefit of existing broadcast or cable viewing data, and the strong viewing across all our markets gives us faith in our ability to create global content brands in a cost-effective, efficient way.”

Netflix released its second original series Friday, and horror show “Hemlock Grove” attracted more viewers globally over the weekend than “House of Cards” did in its first weekend, the retailer says. It did not say exactly how many subscribers watched the new show, but said young adults played it more often than other customers.

Netflix is No. 9 in the Internet Retailer Top 500.

For the first quarter, Netflix also reports:

  • Revenue was $1.023 billion, up 17.6% from $869.8 million in the first quarter of 2012.
  • Net income was $2.69 million, compared to a loss of $4.58 million in Q1 2012.
  • Domestic subscribers numbered 29.1 million, up 24.8% from 23.4 million in Q1 2012 and 7.7% from 27.1 million in Q4. Their subscriptions generated $638.6 million in revenue, compared with $506.7 million in Q1 2012.
  • International subscribers numbered 7.14 million, up 133% from 3.07 million in Q1 2012 and 16.7% from 6.12 million in Q4. Their subscriptions generated $142.0 million in revenue, compared with $43.4 million in Q1 2012. Netflix plans to launch its service in another, as-yet-unnamed European country in the second half of the year, Hastings and Wells wrote in the letter to investors.
  • Altogether, Netflix subscribers watched more than 4 billion hours of streaming video.

While streaming has been taking off for Netflix, the company again reports a decline in its number of domestic DVD subscribers, who pay an additional $7.99 per month to borrow one DVD at a time by mail and may pay $2 more for Blu-ray discs. Domestic DVD subscribers dropped from 10.1 million in Q1 2012 to 7.98 million in Q1 2013. Accordingly, revenue from DVD rentals was down 23.9%, to $243.3 million from $319.7 million in Q1 2012. Netflix predicts the DVD business will continue to shrink while the streaming arm grows over the coming year.

During the first quarter, Netflix inked further content licensing deals with such studios as Warner Bros. Television and Fox Television Studios, it says. With Warner Bros., Netflix has selected only a handful of TV shows to license that it predicts will be popular with its viewers; in some other network deals Netflix has paid for access to many shows that varied in their appeal to viewers, the retailer says in the investors’ letter. The new deal will enhance the quality of its content and allow it to offer more shows as exclusives than before, it says.

The retailer in the first quarter also built a Facebook feature that lets customers who belong to the social network keep tabs on what their friends are watching and what they think of the content.

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