Netflix Digital Prowess: More Streaming Than DVD Rentals

Netflix has turned the digital corner this year: Now more consumers are streaming its video content than watching via renting physical DVDs.

The company, which started as mail-order rental DVD movie business, said the percentage of subscribers who streamed more than 15 minutes of a movie or TV episode was 66% -- up from 41% in the third quarter of 2009 and up from 61% in the second quarter of this year.

On Wednesday, Wall Street analysts said its third-quarter earnings improved 26% -- well over expectations -- to $38 million. Furthermore, profit margins increased and subscriber acquisitions costs fell. All that boosted its stock price up nearly 8% in after-market trading to $164.70.

Revenue improved 31% to $553.2 million. It had estimated revenues of $546 million to $554 million for the period.

Wall Street was also taken with its subscriber growth -- up 13% to 16.9 million subscribers, which was 52% higher than a year ago. Big growth has the company raising its end-of-year subscriber target to a 19 million to 19.7 million range from a previous target of 17.7 million to 18.5 million.



While streaming is its future, Netflix says mailing DVDs is still a growing concern. Netflix CEO and founder Reed Hastings told analysts on its earning call that DVD shipments are up about 10% year-over-year. Hastings said the company was determining how to keep up with demand.

For the fourth quarter, Netflix predicts revenue of $586 million to $598 million, up from a prior estimate of $580 million to $596 million.

Analysts say Netflix will also benefit from some studios shortening the window of a movie's theatrical opening to its DVD release by at little as 30 days. On the other hand, analysts are worried that studios will be looking to take a bigger piece of the pie from video retailers such as Netflix, as well as a growing number of competitors.

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