Netflix Earning Report

Netflix has a lot of things to be happy about in the announcement of its first quarter earnings, but DVD rentals isn’t one of them.

The first quarter results for Netflix are out, and we wouldn’t look at you oddly if you forgot this company was built on the back of DVD rentals because it has apparently forgotten this as well. The break down for how this sector of the business doesn’t appear until the bottom part of page 7 of the report (PDF link), and it then goes on for less than one page. Pages 2 – most of 7 are all about the Watch Instantly streaming service.

All told Netflix added 3 million net subscribers globally in the first quarter for its streaming service, bringing the worldwide total to 26 million.  Meanwhile, the DVD branch of the company saw it’s number of customers slide to 10.1 million, but it was better than the company had actually projected.  Of those 10 million, 7 million are also streaming subscribers, so it currently looks as though the company is saying in a roundabout way that it will eventually lose 3 million customers completely.

Overall the company had a net loss of $5 million or .08 cents a share, coming in better than most projections.  The company foresees the net gains in its streaming business in the second quarter as offsetting the losses from the continued decline in DVD subscriptions – which it projects to be a total of 8.95 to 9.35 million – and an overall return to profitability.  The report does mentions plans for further foreign expansion of its Watch Instantly service in the fourth quarter of this year, but it doesn’t make any mention as to what region that may be occurring in.

Of an interesting side note, on page 4 of the report, Netflix chose to use its financial report as another opportunity to take a swipe at Comcast over its data caps:

Internet Caps Should Apply Equally, or Not At All.

Comcast caps its residential broadband customers at 250 gigabytes per month. On the Xbox, the Netflix app, the Hulu app, and the HBO GO app, are all subject to this cap. But Comcast has decided that its own Xfinity Xbox app is not subject to this 250 gigabyte cap. This is not neutral in any sense. The Xbox is a pure Internet device with a single IP address, works over a consumer’s home wifi, and data to the Xbox is Internet data. When the Xfinity Xbox app uses lots of bandwidth, it competes for that bandwidth with all other Internet usage and users in the home. The Xfinity Xbox app “speaks” TCP/IP like any other Internet device. The only difference between the Xfinity Xbox data and Netflix Xbox data is the Xfinity data is favored by Comcast exempting it from the cap.

Comcast could raise the cap and make it apply equally or just eliminate the caps. Net neutrality principles mean a level playing field for all Internet applications.

In short, it appears that the company is firmly on its way to be a streaming media-only concern, and it’s just a matter of time before it pulls the plug on the DVD/Blu-ray portion of its business.