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Netflix Profit Jumps, But Sub Growth Slows - Broadcasting & Cable

Netflix Profit Jumps, But Sub Growth Slows

Updated: Price increase offset popularity of ‘Orange Is the New Black’
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Netflix said its third quarter profit rose but that a price increase led to slower subscriber growth.

Net income rose 75% to $59 million, or 96 cents a share from $32 million, or 52 cents a share a year ago.

Streaming revenue rose 32% to $1.3 billion from $884 million as subscribers rose to 53 million from 40 million. Since the end of the second quarter, Netflix added 3 million subscribers and is expecting to add another 4 million next quarter.

Domestic subscribers rose to 37 million from 31 million a year ago and 36 million last quarter.

“Around the world, people are discovering the joy of Internet TV. With an incredible variety of original series, films and exclusive licensed content arriving on Netflix in the coming quarters, we will continue to thrill our members and expand our membership," CEO Reed Hastings and CFO David Wells said in a letter to shareholders.

During an online earnings interview, Hastings was asked about HBO’s announcement of a standalone over-the-top service. “We’re excited HBO is in the game with the internet,” Hastings said. But he added that to consumers, HBO is just another channel and that HBO is just another competitor for content.

In Scandinavia, where HBO started up a streaming service, Hasting said HBO had some teething problems they probably won’t have in the U.S. market. He said they’ve licensed content beyond what Time Warner produces and “they’ve done pretty well and we’ve done very well.” He added that consumers interested in content often subscribe to both services.

He added that in Scandinavia, HBO priced its service higher than Netflix.

The company said that net subscriber additions in the U.S. was down from a year ago in the third quarter, probably because of a higher subscription price.

“In hindsight, we believe that late Q2 and early Q3 the impact of higher prices appeared to be offset for about two months by the large positive reception to Season Two of Orange Is the New Black,” the company said. “We remain happy with the price changes and growth in revenue and will continue to improve our service, with better content, better streaming and better choosing. The effect of slightly higher prices is factored into our Q4 forecast.”

During the interview, Hastings said that Netflix intended to raise the value of its service. “As we add more and more great original content, we’re more valuable to our customers,” he said. “Over the long term, consumers pay for value.”

Netflix said per member viewing and retention in the U.S. remained strong, and that competition from piracy, TV Everywhere, Amazon, Hulu or others were a major factor in its result.

“There is no change to our view on the long term attractiveness and US market size of Internet television, and no change to our view of the ultimate size of our US membership," the company said.

Netflix also said it will continue its international expansion by putting all of its profits into developing new territories. Hastings said that international losses have peaked and that international is proving to be a pretty good investment.

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