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October 21, 2008

As Economy Darkens Netflix's 3Q Profit Rise

By Jessica Kostek, TMCnet Channel Editor

Netflix Inc. announced their third-quarter profit surged 30 percent despite the screeching economy and slower subscriber growth. They also announced that they will begin charging about 500,000 subscribers $1 more per month to rent high-definition DVDs made for Blu-ray players. The surcharge becomes effective Nov. 5.

Economy, stop trying to take away our fun! Now that we can’t drive aimlessly around town in our Escalades or Hummers looking for an outdoor adventure, we can’t watch our Blu-ray DVDs either!
As Blu-ray player prices continue to fall, Netflix is weighing in on the idea that subscribers will buy the high-definition gadgets thus giving them more opportunities to raise rates as the rental service braces for the second recession since its inception a decade ago.
Netflix earned $20.4 million or 33 cents per share this period, compared to $15.7 million, or 23 cents per share from earlier in the year.
Revenue rose 16 percent to $341 million, from $294 million last year.
Analysts polled by Thomson (News - Alert) Reuters had projected a profit of 31 cents per share on revenue of nearly $343 million.
Netflix ended the period with 8.67 million subscribers, falling below the goals that management established in July when executives forecast the rental service might enter October with 8.8 million.
"Since July ... the economy has deteriorated markedly," Netflix Chief Executive Reed Hastings told analysts in a conference call Monday. "It now appears that the recession means continued subscriber growth for Netflix, but not as fast as last year."
That expense, known as "subscriber acquisition cost," totaled $32.21 per customer in the third quarter, a 15 percent drop from $37.89 per customer a year ago.

Meanwhile, Netflix's marketing expenses were essentially flat at $49.2 million. Waiting to use the internet more as a tool, the company is spending more to support an online streaming service that has more than 12,000 movies and TV shows over high-speed Internet connections at no extra cost to subscribers.

Jessica Kostek is a channel editor for TMCnet, covering VoIP, CRM, call center and wireless technologies. To read more of Jessica’s articles, please visit her columnist page.

Edited by Jessica Kostek

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