Netflix reported its first quarterly earnings for the year 2012 on Monday, and although the company experienced a drop in total revenue of $6 million (from $876 million last quarter to $870 million now), as well as a net loss in income of $5 million, the company actually did better than Wall Street expected, given Netflix’s tumultuous 2011.
But the biggest surprise of all was just how well Netflix said it was doing in terms of viewing hours, in spite of the loss of all Disney and Sony Pictures movies, which Netflix gave up when it failed to renew its contract with cable channel Starz in the summer of 2011, as Starz owns the rights to re-syndicate that content.
Starz was reportedly asking Netflix for $350 million for the rights to stream Disney and Sony Pictures movies on its website. As it turns out, Netflix probably did the right thing when it called Starz’ bluff and refused to pay the sum. As Netflix’s earnings statement put it:
The Starz deal for 15 Disney Pay TV 1 output titles, plus some catalog films, ended in February. There was no discernible change in churn or viewing levels.Instead, the trend towards watching episodic TV, like “Breaking Bad”, on Netflix continues to grow. On a year-over-year basis, our content is stronger than it has ever been, and our viewing per member is at a record high level.
More to the point, Netflix notes that its users actually don’t mind the fact that the subscription service traffics mostly in years-old TV shows. In fact, Netlix takes credit for helping to introduce users to old seasons of shows still currently on the air, such as AMC’s “Mad Men.” As Netflix explained:
Even now, the most watched episode of “Mad Men” on any given day on Netflix is the first episode of the first season. This means we are still growing the fan base for this show nearly 6 years after it first premiered on television.
And perhaps most striking of all in the earnings report was Netflix’s cavalier attitude toward the competition — namely Hulu, Amazon Prime, and the increasing list of “TV Anywhere,” streaming services offered by cable channels themselves, such as HBO’s Go streaming service for mobile devices and computers.
Netflix brushed off the idea of any serious threats:
Hulu launched its first original series, and has continued its platform (Wii) and country (Japan) expansion. While we have ten times more domestic paid members, and we added over three times more domestic net additions than Hulu in Q1, we do watch them carefully. Most of their viewing, we believe, is from current-season broadcast-network content.
Amazon continues to grow its U.S. video content library available through Amazon Prime. We think they are still substantially behind Hulu in viewing hours. Given Amazon’s size and ambitions, we continue to track their progress carefully as well.
Still, the relatively optimistic report failed to sway investors, with Netflix stock falling over 14 percent in after hours trading.