Netflix’s First-Quarter Profit Soared 87%, Ties with Comcast as Largest Subcription Service

Posted by at 10:48 pm on April 25, 2011

Netflix’s first-quarter profit soared 87%.  Plus Netflix reached a milestone in its winter 2011 results (PDF) as it tied with Comcast to become the largest subscription service in the US. The movie rental and streaming firm added 3.3 million new customers between January and March to hit 22.8 million users, or exactly as many customers as the cable TV giant. Its expansion gave it a 63 percent leap in total subscribers just over the same period last year and nearly double the growth rate.

The company attributed the spike to a “virtuous cycle” in focusing on Internet video. By landing content deals for more Internet video and increasing the number of devices that supported streaming, Netflix created strong buzz among viewers who in turn gave the service more money to roll into content deals, the company’s report said. It added that its deal with CBS gave it a rare position as the only subscription service to have all four major US TV networks providing video, outrunning even the network-backed Hulu Plus.

The company’s more recent deals cemented that strategy and were due to expand it. Buying a major exclusive series was to “test a new licensing model” with a relatively small amount of cash to see if it could build an audience for serial shows, which are already popular on Netflix, without having it first appear on a traditional network. There could be “two or three” smaller-scale deals like this to see if it can repeat any success, Netflix added.

Although not mentioning Comcast by name, Netflix saw its tie with the provider as “complementary” rather than evidence it was contributing to cord cutting, or dropping traditional TV for online video. The service instead was leading to “cord mending” by spurring interest in current seasons after viewers got to see earlier episodes on Netflix first. The goal was not to get timely shows but to get fuller catalogs.

“Recently, the CEO of [a traditional network] characterized Netflix as ‘rerun TV,'” Netflix said. “While we don’t plan to use that line in our next marketing campaign, he is fundamentally correct. Our focus for TV shows is on prior season TV and completeness of series, because this class of content enables us to license content broadly and provide consumers a differentiated experience.”

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