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Netflix CEO Reed Hastings said in a conference call to discuss second-quarter earnings that the online-video giant plans to focus on a “streaming only” future after separating its mail-order DVD service into a separate subscription. But that future, Hastings said, will also bring Netflix into many more countries.
“We gained some confidence when we launched in Canada. That blew away our expectations,” he said. “With the strength of streaming only internationally, we got convinced that we can thrive on streaming only.”
Netflix’s DVD business is largely a U.S.-based business. The promise of international revenue prompted the company to split its monthly streaming and DVD subscriptions, charging $7.99 for monthly access to the site’s streaming content and an additional $7.99 a month to rent one DVD at a time. The site used to charge $9.99 each month for access to both.
Hastings said the company’s DVD-by-mail business was a strong market in the United States, but would not be a strong international product. That’s why the company has tried to shift over to a streaming-only model, he said. But most Netflix subscribers were going for a hybrid subscription that has both mail-order DVD and streaming subscriptions.
“The DVD can last a long time as a successful service if we give it a platform to succeed on,” Hastings said. “Having it as a division in Netflix, we can measure the profit and loss, and we think it’ll be a smart investment.”
Netflix only expects to add 700,000 new domestic subscribers — at the most — in the third quarter this year, which is down from the 1.8 million new domestic subscribers added in the third quarter last year, according to the most recent Netflix earnings report. That means its new guidance is 61 percent lower than the number of new subscribers the company would have brought in if it held steady.
Netflix reported Monday net income of $68 million in the second quarter of 2011, or $1.26 a share, on $789 million in revenue. Net income rose 57% from $44 million in the same quarter a year ago, while revenue rose 52% from $520 million. The consensus of Wall Street analysts surveyed had forecast a profit of $1.11 per share and $791.5 million in revenue.