January 3, 2003, 12:00 AM

Netflix nearly doubles its subscriber base for online DVD rentals

Netflix reports that the number of subscribers to its DVD rental service for the fourth quarter is up 15% from the prior quarter and 88% year-to-year.

As more consumers become comfortable purchasing on the web, they’re also getting more accustomed to using new online services, such as DVD rentals. Netflix Inc. reports that the number of subscribers to its DVD rental service for the fourth quarter ended Dec. 31 is up 15% from the prior quarter and up 88% year-to-year, to 857,000 from 457,000.

Netflix said 93% of its subscriber base is made up of paid subscribers, up from 88% a year ago. The remainder is comprised of new trial subscribers. It said it also lowered its guidance for customer churn for Q4 to 6.6% from 7%, meaning that it expects to show a slightly less than expected loss of former subscribers. It added that it will report figures on churn when it releases its Q4 earnings on Jan. 15, and in all future earnings statements, so that investors can consider the impact of churn on financial metrics such as the cost to acquire new subscribers and gross profit margins.

Indeed, the cost of acquiring subscribers prevented Netflix from showing a profit in the third quarter, the company says. For Q3, Netflix reported a significant improvement in financial performance from a year ago, but a net profit was thwarted by a substantial increase in marketing costs. It posted a Q3 net loss of $1.7 million on total revenues of $40.7 million, compared to a net loss of $5.5 million on total revenue of $18.9 million in the year-ago period. Its Q3 marketing costs more than doubled year-to-year to $9.3 million, up from $3.4 million, the company reports.

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