Netflix, which describes itself as the world’s leading internet television network, ended 2013 with over 41 million paying streaming subscribers and expects to reach 45 million in the first quarter of 2014. Netflix is planning a “substantial European expansion” during the year, which may further contribute to its growing subscriber base. The company currently makes a loss internationally, but the proportional loss is reducing as revenues rise.
Netflix has 33.42 million subscribers to its video streaming service in the United States, of which 31.71 million are paid up. It has 10.93 million internationally, with 9.72 million of them paying.
In the last quarter of 2013 Netflix added 2.33 million subscribers in the United States and it expects to add a further 2.25 million in the first quarter of 2014.
Internationally, Netflix added 1.74 million subscribers in the last quarter of 2013 and is expecting to add 1.60 million in the first three months of 2014.
Currently, Netflix operates in the United States, Canada, Latin America, the United Kingdom and Ireland, the Netherlands and the Nordic countries.
Netflix says that it plans “to embark on a substantial European expansion” later in the year, in the belief that “there is a big international opportunity for Netflix”.
Netflix continues to lose money on its international streaming business, but the losses are reducing every quarter. On international revenues of $712 million, Netflix spent $211 million in marketing in 2013 and made a loss of $274 million.
Consolidated revenues of $4.4 billion in 2013, with costs of $4.1 billion, produced a net income of $112 million.
In comparison, Comcast, with 21.6 million video subscribers in the United States, received over $20 billion in video revenue in the same period, representing around half its cable communications income. Its total annual cable costs were around $24 billion, of which programming accounted for around $9 billion.
Interestingly, Netflix tends to talk about programming, including plaudits for its own commissioned series such as House of Cards. This is notable in that some cable companies scarcely mention programming in their earnings releases, concentrating on corporate and financial metrics that characterise subscribers as ‘revenue generating units’.
Netflix prefers to talk about its subscribers as ‘members’ in its ‘letter to investors’. It does not even break out earnings per member. It does not really need to. The math is simple and the fees are transparent. Its members are on average paying around $7.80 a month for Netflix in the United States and little less internationally.
Nevertheless, Netflix is introducing different price points, such as an $11.99 a month option for up to four concurrent streams. However, it says that it is no rush to implement a broader set of options and is still researching the best way to proceed.
Reed Hastings, the chief executive of Netflix, said the company has no plans to embrace advertising, saying: “Our brand at least over the next couple of years and at this point really stands for that commercial free experience.”
After rolling out the Netflix streaming application on the Virgin Media TiVo box in the United Kingdom it says it is “quite pleased with the implementation and reception.” This was followed by rollouts on similar platforms for Waoo! In Denmark and Com Hem in Sweden. Netflix says it plans to follow up with integrations with some of the smaller video service providers in the United States, presumably those with a TiVo platform.
At CES Netflix announced that the second season of House of Cards would be available in 4K resolution, as well as all five seasons of Breaking Bad. It says 4K streams encoded at 15.6Mbps are well within reach of a “significant minority of its members” and this number will continue to grow. It acknowledges “the short-term impact of 4K is mainly on consumer perception of Netflix as a leader in Internet TV”.
Netflix remains positive in response to the successful challenge by Verizon of net neutrality rules in the United States. In principle a broadband service provide could legally degrade Netflix traffic. “Were this draconian scenario to unfold,” Netflix said, “we would vigorously protest and encourage our members to demand the open internet they are paying their ISP to deliver”.
The chief executive told analysts: “we operate in 41 countries that have quite a variety of states of net neutrality and we’ve never had a significant problem to date.”
As informitv has previously observed, broadband service providers have a very profitable business they want to expand and consumers buy higher capacity packages mainly for high-quality streaming video. Netflix says that service providers appear to recognise this and many of them are working closely with them and other streaming video services to enable subscribers to receive consistently high-quality streaming video. However, Netflix warns that more regulation would be required if some service providers start impeding specific data flows.
Asked if the possible launch of virtual video service providers, combining scheduled channels and on-demand services would affect the Netflix value proposition, Reed Hastings said he doubted it would have a direct effect. He pointed out that while Netflix has grown to 33 million subscribers in the United States, the total number of pay-television subscribers has remained at around 100 million.