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Netflix Q3 2012 Results - Loss Of 650,000 Disc Subs Predicted

Lee Stewart
10-17-2012, 10:39 AM
Indeed, Netflix, which reports third quarter results Oct. 23, is expected to downsize initial year-end domestic subscriber additions of 7 million, in addition to posting a loss of about 650,000 disc subs.

http://www.homemediamagazine.com/netflix/analysts-costs-expansion-undermining-netflix-28601

Lee Stewart
10-17-2012, 10:42 AM
Netflix lost 850,000 disc subs in Q2 2012:

http://www.highdefforum.com/high-definition-media/136965-analysist-projects-netflix-loss-740k-1-14m-disc-subs-q2-2012-a-2.html

Netflix also lost 1 million disc subs in Q1 2012.

morriscroy
10-19-2012, 06:51 AM
More of the same. Finally the management consultants and/or business school professors admit the obvious.


http://www.forbes.com/sites/petercohan/2012/10/19/how-google-microsoft-and-netflix-failed-at-tech-transitions/


Of course, the king of all failed tech transitions is Netflix (NFLX). As I wrote in September 2011 when it introduced its controversial pricing policy — an up-to 60% price increase, Netflix could not replicate in online streaming the dominance it enjoyed in DVD-by-Mail. That pricing policy led two-thirds of my students to cancel their accounts.

Netflix’s problem was that in DVD-by-Mail, it could buy DVDs at a low price and rent them out. But when it came to online streaming, it had to license the content from studios and as the popularity of online streaming grew, its licensing costs spiked 53%.

Moreover, the bandwidth required for consumers to stream movies was soaring and some Internet service providers started charging consumers for that extra consumption. Without the ability to control those costs, Netflix was doomed to profitless prosperity.

I can’t fault Google, Microsoft, or Netflix for trying to go where their consumers are heading. But that is also the precise problem they face — when these three were first getting off the ground, they were setting the direction for consumers.

Now they are struggling to follow the lead that other competitors are taking. And in this regard, they are at a huge competitive disadvantage — precisely because of their greatest strengths. That is, their market lead in the previous generations of technology has given them capital they could invest in developing a lead in the new technology.

But it has also given them a mindset that makes them frame their new business strategy through the blinders created by their previous success. Google tries to make mobile search ads that are too much like its successful desktop ones; Microsoft can’t overcome its PC-centric mindset; and Netflix can’t tap the competitive advantages it enjoyed in DVD-by-Mail to win in online streaming.


These guys/profs figuring things out years after the fact. :rolleyes:

bruceames
10-19-2012, 03:27 PM
Lol, this guy is trying to say that Google and Microsoft are failures?

morriscroy
10-19-2012, 07:04 PM
Lol, this guy is trying to say that Google and Microsoft are failures?

Appears so.

Another out of touch business school professor. :banghead:

Lee Stewart
10-23-2012, 05:05 PM
Netflix Q3 Profit Drops 82%, Adds 1.2M Subs

Netflix Oct. 23 said it posted a third-quarter (ended Sept. 30) profit of $7.6 million — down nearly 82% from a profit of $62.5 million during the previous-year period. Global revenue increased 10% to $905 million, compared with $822 million last year.

Los Gatos, Calif.-based Netflix said it added 1.16 million domestic streaming subscribers in the quarter, in addition to 690,000 international subs. The service added 510,000 international subs during the same period last year before it started rental streaming in the United Kingdom and Ireland.

The domestic subscriber additions were well below projections and leave Netflix less than half-way to its year-end net addition goal of 7 million subs.

Netflix ended the quarter with 23.8 million domestic and 4.31 million international streaming subs. It lost 630,000 disc subs to end the period with 8.61 million.

Regardless, disc rentals continue to drive margins, generating $131 million in contribution profit and 48.2% margins — the highest since the fourth quarter last year.

Domestic streaming generated $91 million contribution profit and 16.4% margin, while international operations posted a contribution loss of $92 million, up 75% from a contribution loss of $23 million last year.

Indeed, Netflix expects the contribution loss for international operations to increase to $113 million in the fourth quarter and then declining in 2013.

“While we are not growing membership as fast as in 2010, we think that over time nearly all U.S. households will be broadband households, nearly all video will be Internet video, and that as our content and member experience continue to improve faster than competitors,” CEO Reed Hastings and CFO David Wells wrote in a shareholder letter.

The executives said Netflix’s long-term domestic market opportunity remains two-three times that of linear HBO. They said Netflix would resume international expansion after "significantly" reducing foreign losses and establishing the SVOD service's profitability on a global basis.

Eric Wold, analyst with B. Riley & Co. in Los Angeles, said he has predicted 5.6 million additional paid subs by the end of the year — a tally Netflix has now lowered to a range from 4.75 million to 5.25 million. Netflix ended the quarter with 3.43 net new subs since the beginning of the year.

"I continue to believe that increasing competition and ubiquitous content will drive consumers to look at other options," Wold wrote in an email. "And with a minimum of $5 billion in content commitments and a greater amount of spend on original programming, this poses a risk to the entire business model."

Wold said management's desire to maintain international expansion will continue to undermine the bottom line indefinitely.

"I continue to believe earnings expectations for the next few years remain too aggressive," Wold said, adding that the disc margin improvement was likely due more to a beneficial mix of discs shipped or possibly less usage of the subscriptions ahead of possible cancellations.

Investors concurred, sending Netflix shares down more than 16% in after-hours trading.

http://www.homemediamagazine.com/netflix/netflix-q3-profit-drops-82-adds-12m-subs-28646

bruceames
10-23-2012, 05:14 PM
Yikes, not so good. Streaming sub growth / profits worse than expected, but disc sub loss and profits probably a little better than expected.

Lee Stewart
10-23-2012, 07:03 PM
Regardless, disc rentals continue to drive margins, generating $131 million in contribution profit and 48.2% margins — the highest since the fourth quarter last year.

Netflix lost 850,000 disc subscribers in Q2, to end the period with 9.24 million physical media subscribers. The decline in disc subs is noteworthy, considering Netflix reported $146 million in contribution profit from physical rentals, including 46% margins.

HMM thinks that the margin % is more important than the actual contribution profit dollars :eek: :confused:

bruceames
10-24-2012, 09:18 AM
Their stock got hammered yesterday, so obviously investors weren't too pleased with the report.

Just a huge gap between DVD and streaming profits for the company. Now with Amazon and Verizon/Redbox getting entering the market with others surely to follow, the future doesn't look too bright for Netflix streaming growth / profits. I think they should reinvigorate their highly profitable DVD business.

Lee Stewart
10-24-2012, 09:31 AM
Their stock got hammered yesterday, so obviously investors weren't too pleased with the report.

Just a huge gap between DVD and streaming profits for the company. Now with Amazon and Verizon/Redbox getting entering the market with others surely to follow, the future doesn't look too bright for Netflix streaming growth / profits. I think they should reinvigorate their highly profitable DVD business.

Easier said than done. Disc is no longer the "must have" product while SVOD is grabbing all the headlines and consumers.

IMO, consumers are looking at their high CBL and SAT bills and thinking is there an alternative? SVOD may be that alternative. It sure won't be disc.

bruceames
10-24-2012, 10:59 AM
Easier said than done. Disc is no longer the "must have" product while SVOD is grabbing all the headlines and consumers.

IMO, consumers are looking at their high CBL and SAT bills and thinking is there an alternative? SVOD may be that alternative. It sure won't be disc.

A little marketing would certainly help, as well as promotions and having a prominent mention on their website.

As it is, it's corporate "indifference", so any effort would be better than the status quo.

After all, disc-by-mail is still more convenient than Redbox (aside from waiting a day or two for the discs to arrive) and the selection is second to none. That's a lot of upside, upside that would be the focus of their marketing campaign. Also to help promote both streaming and discs and make them a "team", they should offer disc + streaming packages at a discount (say, 20% off purchasing them separately). That's why Verizon/Redbox will be doing, I think.

Lee Stewart
10-24-2012, 11:08 AM
A little marketing would certainly help, as well as promotions and having a prominent mention on their website.

As it is, it's corporate "indifference", so any effort would be better than the status quo.

After all, disc-by-mail is still more convenient than Redbox (aside from waiting a day or two for the discs to arrive) and the selection is second to none. That's a lot of upside, upside that would be the focus of their marketing campaign. Also to help promote both streaming and discs and make them a "team", they should offer disc + streaming packages at a discount (say, 20% off purchasing them separately). That's why Verizon/Redbox will be doing, I think.

They had a promotion . . .

http://www.highdefforum.com/high-definition-media/137577-netflix-offers-one-month-free-disc-rentals-streaming-subs.html

And still lost 650,000 disc subs in Q3 2012

bruceames
10-24-2012, 11:14 AM
They had a promotion . . .

http://www.highdefforum.com/high-definition-media/137577-netflix-offers-one-month-free-disc-rentals-streaming-subs.html

And still lost 650,000 disc subs in Q3 2012

Netflix is quietly offering its 24 million streaming subscribers in the United States a free month of disc rentals, the by-mail packaged media rental pioneer disclosed in a company blog.

"Quietly offering"? Not my idea of a promotion. Plus, it went effective at the end of August, nearly 2/3 into the Q3 reporting period.

I had something more in mind of promoting disc-by-mail on the same level as they are doing with streaming, as well as offering a permanent 20% discount for bundling them together.

But since that would be the smart thing to do, I'm sure they won't do it.

Lee Stewart
10-24-2012, 11:24 AM
"Quietly offering"? Not my idea of a promotion. Plus, it went effective at the end of August, nearly 2/3 into the Q3 reporting period.

I had something more in mind of promoting disc-by-mail on the same level as they are doing with streaming, as well as offering a permanent 20% discount for bundling them together.

But since that would be the smart thing to do, I'm sure they won't do it.

When NF looks at it's D-b-M program, all they see are huge handling costs and postage costs. Sure it's a myopic view but it's also reality.

So Bruce . . . how well did disc rentals do according to the DEG for Q2 2012? ;)

bruceames
10-24-2012, 11:28 AM
When NF looks at it's D-b-M program, all they see are huge handling costs and postage costs. Sure it's a myopic view but it's also reality.

So Bruce . . . how well did disc rentals do according to the DEG for Q2 2012? ;)

Not so good. And how well did disc rentals profits do for Netflix lately? ;)

Disc may be dying, but it's certainly not going away anytime soon, and Netflix is making a relative killing off of it. That's the bottom line. They could and should be milking OD for every last penny of profit but Netflix is being stupid, as reflected in their falling stock price.

Lee Stewart
10-24-2012, 11:31 AM
Not so good. And how well did disc rentals profits do for Netflix lately? ;)

Disc may be dying, but it's certainly not going away anytime soon, and Netflix is making a relative killing off of it. That's the bottom line.

And that "relative killing" is reduced every quarter. They are killing the goose that laid the golden eggs.

Lee Stewart
10-24-2012, 11:42 AM
At the end of Q2 2011, NF had 13.9 million disc subs. Now, at the end of Q3 2012, they have 8.61 million. That's a 38% loss of subs.

bruceames
10-24-2012, 03:36 PM
At the end of Q2 2011, NF had 13.9 million disc subs. Now, at the end of Q3 2012, they have 8.61 million. That's a 38% loss of subs.

Of which I would guess at least half is due to their indifference. They have a choice: maximum disc revenue, which by far is the most profitable branch of their business. Or not.

Neflix = Stupid.

Lee Stewart
10-25-2012, 12:01 AM
Analyst: Netflix Overstates Domestic Streaming Profitability

When Netflix reported a $91 million contribution profit from its domestic streaming business — which represented 16.4% of its total third-quarter (ended Sept. 30) margin — it would appear the company’s focus on subscription video-on-demand was beginning to bear fruit.

Contribution profit is determined by revenue minus the cost of that revenue and related marketing expenses.

Upon closer scrutiny, however, it appears the Los Gatos, Calif.-based rental service overstated streaming’s positive impact on the bottom line by not fully allocating related technology and development (T&D) and general and administrative (G&A) costs, according to Michael Pachter, analyst with Wedbush Securities in Los Angeles.

Netflix has long put most of its eggs in the SVOD basket — a market it essentially created in 2007 while at the same time giving its pioneering by-mail disc rental business the cold shoulder.

While few dispute digital distribution is the future of home entertainment, Netflix is betting its future on it — so much so, it is aggressively launching service internationally, largely on the back of anticipated domestic subscriber growth and disc rentals.

Indeed, disc rentals, which include hybrid disc-streaming subscribers, generated $131 million in contribution profit and more than 48% margin.

Pachter said the international streaming segment (which generated a $92 million contribution loss in Q3) accounted for 9%, 7% and 5% of total revenues in the last three quarters, respectively, yet was allocated 22%, 20% and 19%, respectively, of cost of revenues and marketing expense in those time periods.

Meanwhile, when factoring in T&D spending and G&A to the three business units, the domestic streaming segment is far less profitable than its contribution profit would suggest. Pachter said T&D and G&A — both are excluded from the contribution profit calculation — disproportionately impact domestic streaming as the bulk of T&D expenditures are incurred to support streaming, and G&A should be allocated based upon revenue.

“When combined, these two line items offset over 90% of Netflix’s domestic streaming consolidated contribution profit through the first three quarters of the year,” Pachter wrote in an Oct. 24 note. “We think that this is a gross [understatement], and one that has led many investors to conclude that the domestic streaming business is highly profitable.”

http://www.homemediamagazine.com/netflix/analyst-netflix-overstates-domestic-streaming-profitability-28666

Lee Stewart
10-25-2012, 01:03 PM
Netflix Touts 30 Million Streaming Subs

Netflix Oct. 25 said it has topped 30 million subscribers globally who are using its pioneering subscription video-on-demand streaming service, including 25 million in the United States.

The milestone comes the day after the Los Gatos, Calif.-based rental service reported lower-than-expected domestic sub growth in the third quarter, ended Sept. 30. The shortfall has prompted Netflix shares to decline more than 9% in value since Oct. 19.

Regardless, co-founder and CEO Reed Hastings took to his Facebook page to congratulate Netflix for reaching the 30 million mark.

“Thank you, thank you, thank you,” he wrote. “Thirty million of you are now Netflix streaming members.”

Again, Hastings ignored (publicly) the 8.6 million Netflix subs who rent discs, including a sizable percentage that opts for physical and digital content. While that tally is down 38% from 13.93 million disc subscribers a year ago, physical subs still generate a lion’s share of Netflix profit.

Indeed, the disc business, which Hastings infamously tried to spin off as Qwikster less than two years ago, generated $131 million in contributory profit and 48.2% of Netflix’s margin.

http://www.homemediamagazine.com/netflix/netflix-touts-30-million-streaming-subs-28672

bruceames
10-27-2012, 11:45 AM
Oh, the spin, lol. Now that domestic sub growth is falling flat on its face, Quikstings is combining international subs with the domestic subs to give the appearance of serious growth.

And of course, he ignores his bread and butter DVD by mail like it were the plague.

What a loser.

mikemorel
10-28-2012, 04:45 PM
Of which I would guess at least half is due to their indifference. They have a choice: maximum disc revenue, which by far is the most profitable branch of their business. Or not.

Neflix = Stupid.

Oh, the spin, lol. Now that domestic sub growth is falling flat on its face, Quikstings is combining international subs with the domestic subs to give the appearance of serious growth.

And of course, he ignores his bread and butter DVD by mail like it were the plague.

What a loser.perhaps you should be open to the possibility that studios are pushing Netflix away from disc rentals toward streaming in order to minimize massive disc piracy (rent and rip).

Nobody is that stupid.

bruceames
10-28-2012, 05:48 PM
perhaps you should be open to the possibility that studios are pushing Netflix away from disc rentals toward streaming in order to minimize massive disc piracy (rent and rip).

Nobody is that stupid.

Ok, enlighten me. How exactly are the studios "pushing" Netflix away from OD? A little under-the-table green so that they don't advertise and simply treat like a Cinderella? Not-so-favorable purchase deals?

Otherwise, they are simply enforcing 28 day embargos, which the studios are doing with Redbox as well.

Lee Stewart
10-28-2012, 10:56 PM
Ok, enlighten me. How exactly are the studios "pushing" Netflix away from OD? A little under-the-table green so that they don't advertise and simply treat like a Cinderella? Not-so-favorable purchase deals?

Otherwise, they are simply enforcing 28 day embargos, which the studios are doing with Redbox as well.

Except Netflix has a 56 day embargo on WB titles while Redbox only has a 28 day embargo

mikemorel
10-29-2012, 10:25 AM
Ok, enlighten me. How exactly are the studios "pushing" Netflix away from OD? A little under-the-table green so that they don't advertise and simply treat like a Cinderella? Not-so-favorable purchase deals?

Otherwise, they are simply enforcing 28 day embargos, which the studios are doing with Redbox as well.

Netflix Will Have Lost 8 Million Of Its DVD Subscribers By Year's End (http://www.videonuze.com/article/netflix-will-have-lost-8-million-of-its-dvd-subscribers-by-year-s-end)

Netflix reported its Q3 '12 results yesterday, including dismal streaming growth of just 1.2 million subscribers in the critical U.S. market. But the big takeaway for me continues to be the breathtaking contraction of its highly profitable DVD-by-mail segment. By my calculations, beginning in Q3 '11 (when the Qwikster debacle was launched) through Netflix's forecast for Q4 '12, the company will have lost approximately 8 million DVD subscribers, or about half the estimated 15.9 million it had back on July 1, 2011.

Can you think of any other company that has pursued a voluntary strategy shift away from a reasonably healthy core business, which then resulted in half of its customers dropping in the subsequent 18 months? I cannot. In fact, I wonder if there's ever been one. That's how remarkably bad the Qwikster decision is turning out to be.How does one go about losing 8 million very lucrative disc subscribers in 15 months? You have to try very hard to do that. You have to make a concerted effort. Yet Netflix is managing to do just that.

For the most part, people don't want to pirate all-you-can-eat SD streaming. There is no point in doing so, when you can pretty much watch whatever, whenever you want.

Even though Hollywood partially "blames" Netflix streaming for the collapse of disc sales, studios still make streaming deals readily available to Netflix, Amazon, and other subscription streamers. Even though Hollywood was supposed to jack up the cost of licensing exponentially, Netflix still offers 20,000 titles for $8 per month. That hasn't changed.

The only conclusion IMO, is that studios would much rather have people stream than rent discs. And Netflix is obliging them.

bruceames
10-29-2012, 10:55 AM
I see your point, Mike, and it does make some sense. So you think Netflix is playing along with the studios wishes to snuff out OD rental, in order to be in their good graces for upcoming streaming contracts. If Netflix is doing that, then they are sacrificing a lot of short term profit. I would think that in return that they expect the studios to have their back down the road.

And if that's the case, then Warner's deal with Redbox must have been looked upon by Warner as the lessor of two evils (give them 28 days vs. 56 for Netflix so that they don't keep going to retail in order to make them available on day one), and that the studios wish Redbox would go away ASAP. But then again, Warner just announced that they're making new releases available from day one to all B&M outlets. So it doesn't quite all add up.

morriscroy
10-29-2012, 02:31 PM
For the most part, people don't want to pirate all-you-can-eat SD streaming. There is no point in doing so, when you can pretty much watch whatever, whenever you want.

Good point.

Even when flat-fee all-you-can-eat HD streaming (or for that matter 4k, 8k, etc ...) becomes the norm in the future, I doubt there would be many folks who would be heavily into pirating such content.

Perhaps this may be the eventual endgame of the media business. Catalog titles end up in the flat-fee all-you-can-eat streaming portfolio, while new releases can be sold "a la carte" for several months or even a year (before it eventually gets dumped into the flat-fee all-you-can-eat streaming portfolio).