Print 12 comment(s) - last by TakinYourPoint.. on Jan 25 at 6:00 PM

Netflix surprises Wall Street

Streaming video company Netflix recently posted its financial results for Q4 2012. Netflix had a very strong quarter adding nearly four million new customers in the United States and abroad. The company's results were better than expected on Wall Street, sending stock prices soaring (the stock is currently up over 37 percent to $142).

One reason analysts and Wall Street investors were so surprised by Netflix's quarterly results was because three months ago the company had issued a letter to shareholders warning that it expected to see a loss for the fourth quarter.

Reuters believes that Netflix underestimated the impact that incredibly robust sales of tablets, smartphones, and smart TVs would have over the holiday shopping season. The huge numbers of new devices meant a significant number of new signups for the streaming video service.

Netflix reported $8 million in net income for Q4 2012 or $.13 per share. Revenue rose 8% to a total of $945 million compared to the same quarter of the previous year.

The company also says that it expects to add 1.7 million new members during the first quarter of 2013. However, Netflix is predicting "relatively flat" net income for the quarter due to declining DVD profits and increased operating costs globally.
Analysts on Wall Street had expected Netflix report quarterly loss of $.13 per share. Full-year income for Netflix in 2012 was $17 million, a 92% decline from the previous year when Netflix reported $3.6 billion in full-year income. The massive decline is blamed on increasing costs (mainly the costs of purchasing movie/TV show streaming rights from studios).

Netflix recently announced its new AirPlay rival, DIALservice, in cooperation with YouTube.

Sources: Reuters, Netflix [PDF]

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By Samus on 1/24/2013 12:51:23 PM , Rating: 2
That's ridiculous a service company is only making a 2% profit delivering content for studios. Man Netflix is getting boned :/

RE: Fees
By DanNeely on 1/24/2013 12:58:18 PM , Rating: 2
Netflix is a middleman; they almost always get squeezed badly.

RE: Fees
By StealthX32 on 1/24/2013 1:51:59 PM , Rating: 1
As much as I despise moneygrubbing studios, you can't blame them entirely. Netflix still has a lot of overhead from when DVD rentals was their bread and butter, and they were too slow to transition away from that.

RE: Fees
By inperfectdarkness on 1/25/2013 2:33:36 AM , Rating: 2
Netflix can't transition away from DVD's. Over half of their content is still "DVD ONLY". Blame the content owners who refuse to get on board with a digital model for providing this "squeeze". Worse, a lot of content owners still dislike a "one stop shop" business model for accessing content.

RE: Fees
By maugrimtr on 1/25/2013 10:07:32 AM , Rating: 5
How to undermine your movie's profits:

1. Make good movie (hopefully!).
2. Distribute movie to theatres.
3. Wait 6 months.
4. Distribute movie to DVD.
5. Wait up to a year.
6. Distribute movie digitally to squeeze out some more profit.
7. Try to figure out why all the pirates who downloaded your movie from a high quality torrent refuse to give you their money for an ancient movie they've already watched three times.
8. Profit??? No, use Hollywood Accounting to declare a loss and evade tax bill.

In any case a 2% margin for Netflix is more realistic that the stupendous profits it might otherwise have. Well, barring Apple and it's mandatory 30% cut of absolutely EVERYTHING.

If you ever use Netflix outside the US, one obvious problem is that it very rarely has any recent movies. Usually only loss making movies where a studio is desperate for the cash. Otherwise, it's a long long long wait for new content. Content that can be downloaded within a day of a DVD release (or earlier from a camera recording/pay per view showing) from a torrent or a more anonymous file hosting service.

There is an entire generation or three of customers who are opting for the illegal route because of this mess.

RE: Fees
By TakinYourPoints on 1/25/2013 5:55:24 PM , Rating: 4
In any case a 2% margin for Netflix is more realistic that the stupendous profits it might otherwise have. Well, barring Apple and it's mandatory 30% cut of absolutely EVERYTHING.

That only applies to the app store. Everybody, Apple included, pays about the same wholesale prices for media purchases and rentals, be it books, movies, music, etc. iTunes makes less than 10% total. Margins are even lower for "you get everything" subscription services like Netflix, Rdio, Spotify, etc, since profits to publishers are distributed differently. Direct sales or rentals from Apple/Microsoft/Amazon/etc are going to get a relatively bigger (but still low) cut.

30% is a pretty standard cut for applications stores, its the same with Amazon and Microsoft. The exception is something like Steam which uses a sliding scale. Valve's cut starts at 30% but can go as high as 70%.

RE: Fees
By TakinYourPoints on 1/25/2013 6:00:46 PM , Rating: 2
It sucks. I think its a matter of time though until a deal with studios is made. Physical media is quickly being made obsolete, the fact that 1/3 of internet traffic in the US is from Netflix says everything. The main thing keeping Blu Ray alive are the inefficient codecs (its amazing how quickly we get spoiled, haha) currently in use.

Once you can get the quality of a 30GB Blu Ray film into 3GB for streaming or local storage, its over.

RE: Fees
By Hakuryu on 1/24/2013 2:36:07 PM , Rating: 2
Yea, I'm wondering if those numbers are correct. They made almost one billion dollars in revenue, and only make eight million in profit?

So for every one mil they make, they are spending around 118 million... jeez. I knew they spent alot on acquiring content, but never thought it was that steep.

RE: Fees
By TakinYourPoints on 1/24/2013 4:14:56 PM , Rating: 2
Profit margins for content distributors are razor thin. Its like this for other download/streaming services (Apple, Amazon, Microsoft, etc). The bulk of profits go to the publisher/developer/artist/etc.

Netflix has it even worse since they give access to everything they have rather than doing individual rental or purchase like those others do.

"It seems as though my state-funded math degree has failed me. Let the lashings commence." -- DailyTech Editor-in-Chief Kristopher Kubicki
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