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Netflix blows past earnings projections

Fourth-quarter profit for the movie-streaming company jumps 52% as more than 3 million subscribers sign up.

January 27, 2011|By Ben Fritz, Los Angeles Times

No wonder Hollywood's getting antsy.

Netflix Inc. reported strong subscriber and revenue growth in the fourth quarter of 2010, exceeding its own projections and Wall Street expectations and sending its already sky-high stock up 9% in after-hours trading.

Defying concerns that Netflix's rapid growth rate might slow, its revenue increased by 34% to $596 million. The company added 3.08 million subscribers in the three-month period that ended Dec. 31, the first time it has added more than 2 million in a quarter.

Net income rose 52% to $47 million.

Hollywood studios have questioned whether they are compensated fairly for the use of content on the Internet streaming service, which is increasingly seen as a competitor to cable. Time Warner Chief Executive Jeff Bewkes, whose HBO pay cable network is seen as threatened by Netflix, has been one vocal critic.

The Silicon Valley company says it is up to the challenge. Chief Content Officer Ted Sarandos recently told an industry conference that Netflix would be an "aggressive bidder" for movies from HBO's sister movie studio, Warner Bros., when its contract with the pay cable network expires.

On a conference call with analysts Wednesday, Netflix Chief Executive Reed Hastings defended the value of his company to Hollywood and said deal-making has become easier.

"We're feeling great about our ability to make content owners a lot of money and to get deals done," he said.

Netflix currently licenses content for its streaming service from a number of movie studios and television networks both directly and indirectly via the pay cable channels Starz and Epix.

The five-year Epix deal, which brings Netflix movies from Paramount Pictures, Lionsgate and Metro-Goldwyn-Mayer, began last September and is worth about $1 billion.

Netflix's deal with Starz, which gives it movies from Sony Pictures and Walt Disney Studios, expires in the first quarter of 2012. The two companies are already talking about a renewal, which is expected to substantially raise Netflix's costs.

Streaming is becoming an important part of Netflix's business and the company is encouraging subscribers to choose it over DVDs by mail. Hastings said the "vast majority" of subscribers are using a new $8-per-month streaming-only plan or one that offers streaming plus one DVD for $10 per month.

Netflix stock closed down 2% at $183.03 before financial results were released Wednesday, then jumped to just under $200 after hours.

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