Commentary

Netflix Posts Boffo Q1 Results As CEO Hastings Puts Subscribers First

There was a time, not so very long ago, when some observers wondered if Netflix’ customer relations gaffes — founder and CEO Reed Hastings later accused himself of “arrogance” — were so severe that the company might go the way of the mailed DVDs that had been its original product. Yesterday, it disclosed that its revenue grew 43% year-over-year in the first quarter and it added 7.41 million subscribers worldwide — up 50% year-over-year and trouncing analysts’ — and its own — expectations.

Netflix added 1.96 million new subscribers in the U.S. and 5.46 million internationally, bringing its total worldwide reach to more than 125 million households. Its stock rose more than 5% in after-hours trading, continuing its upward trajectory.

advertisement

advertisement

Hastings apparently learned his lesson well. 

“There's no plan to raise prices again right away. That will likely happen, but only when Netflix has earned it, company executives said Monday,” reports Mike Snider for USA Today.

“Netflix' success depends on first getting consumers to subscribe to the service, Hastings says. ‘So you have to earn it first by doing spectacular content that everybody wants to see,’ he said in an interview with Morgan Stanley head of media research Ben Swinburne posted on YouTube. ‘But if you do that, you can get people to pay a little bit more because then we are able to invest more and further improve,’ he said. ‘But we always approach it on a “have we earned more viewing for people” basis first, rather than a price-first basis.’”

Netflix’ vaunted original programming isn’t coming cheap, of course.

“The cash cost of programming reached $9.5 billion in the last 12 months, according to Bloomberg Gadfly calculations. That figure has nearly doubled in two years — faster than Netflix revenue growth over the same period,” reports Shira Ovide for Bloomberg.

“Netflix’ eye-popping programming costs and its eye-popping subscriber numbers are related. Netflix can’t back out of being an expensive entertainment creation machine. Those contracts with Shonda Rhimes and other Hollywood heavy hitters are signed in ink. Productions have already started on expensive projects. Netflix' programming costs are relatively fixed. That means Netflix needs to keep more people signing up for subscriptions to make sure that pricey programming pays off,” Ovide continues.

The company’s “stock has outperformed its technology peers as investors have grown concerned about possible regulation of tech giants like Alphabet Inc.’s Google and Facebook Inc. over data privacy concerns,” point out Shalini Ramachandran and Imani Moise for the Wall Street Journal. “… Hastings sought to distance the subscription-supported company from other tech giants” on the earning call yesterday, which is transcribed in full on Seeking Alpha

“We’re very different from the ad-supported businesses and we’ve always been very big on protecting all of our members’ viewing,” he said. “I think we’re substantially inoculated from the other issues that are happening in the industry.”

The company might even be on the prowl for some acquisitions, Variety’s  Andrew Wallenstein reports and Marketing Daily’s P.J. Bednarski’s story about its reported bid for Regency Outdoor Advertising would confirm. 

“Don’t let Netflix’ quiet M&A track record fool you: The company is open to making the right deal, according to top execs who discussed that prospect in an appearance on the streaming service’s pre-taped discussion following its earnings report Monday,” Wallenstein writes.

“Though the Los Gatos, Calif.-based company has made only one acquisition in its 20-year history — comic-book publishing company Millarworld — Netflix chief content officer Ted Sarandos signaled his interest. ‘In terms of using M&A to acquire intellectual property, it could be a very useful tool,' he said.” 

Specifically regarding its marketing, Netflix has this to say in the release announcing its results:

“We’re investing in more marketing of new original titles to create more density of viewing and conversation around each title (i.e., bigger hit in a nation or demographic). We believe this density of viewing helps on both retention and acquisition, because it makes our original titles even less substitutable. Because we operate in so many countries, we are able to try different approaches in different markets, and continue to learn.”

Speaking of density, I’m not exactly sure what that means except that it is spending more money to pitch its original programming more precisely to its target audiences worldwide. I think.  

Next story loading loading..