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Netflix announces 27 million US subscribers, posts unexpected profit

Netflix iPhone 5

Netflix has announced a total of 27.15 million US streaming subscribers in the fourth quarter of 2012, with revenue of $945 million and a surprise profit of $8 million, rather than the loss that was expected. The company had previously said it expected a loss based on its spending in late 2012, including the cost of expanding its international presence. The company's results were overall at the high end of its previous guidance: Netflix had previously said it expected anywhere from 26 to 27.1 million domestic streaming subscribers. Internationally, it rose to 6.1 million streaming subscribers, compared to about 1.9 million at the end of 2011 and above even the top estimate of what it expected. On the DVD side, subscriptions are still shrinking, now down to 8.2 million from 11.2 at the end of 2011.

27.15 million streaming subscribers in the US, 6.1 million elsewhere

The company says it's still losing money on international expansion, since the subscription base hasn't yet caught up to what Netflix is spending to license content in those countries. Netflix launched in the Nordic countries during August 2012, and it says it won't expand to other countries until late 2013 or 2014. Despite this, the company expects the cost of operating worldwide — along with shrinking profits from DVDs — to make for relatively flat profits in early 2013. The company also had less cash on hand than before, partly because of the cost of paying for original content like the new season of Arrested Development or Eli Roth's Hemlock Grove.

Netflix obviously touted both its European expansion and its move into original content, as well as major deals like the recent one with Disney. There's not much word on new features or content besides what we've heard so far, but the company did say it was still working on its revamped individual profiles feature and would roll it out later this year if tests go well.

Netflix is still losing money internationally, but it exceeded expectations

Netflix spent early 2012 recovering from a price hike and attempted spinoff of its DVD business in 2011, and subscriber numbers have grown at a steady clip, from around 21.5 million US streaming customers at the end of 2011 to over 25 million by the third quarter of 2012. It lost money in the first quarter of 2012, but returned to profitability in the following months. But the company has faced growing challenges, particularly from studios who are realizing the value of the streaming video market, bus and from competitors like Amazon who are eating into Netflix's former lock on US streaming. It's also been working on expanding internationally, a field where it once again competes with Amazon and its subsidiary Lovefilm. These latest numbers, however, are excellent for the company, both in revenue and subscribers.

Update: On its call with investors, Netflix has spoken more about the importance of original series to its project, referring to it as both content and a form of advertising; in the original investor letter, it called it a "defining moment" for internet TV. At the same time, it's being circumspect about how this will affect other parts of its business, or whether we could see things like TV syndication or DVD releases for shows like House of Cards.

The company also addressed the current conflict over its improved high-definition content, which will only be available on ISPs that have signed up for the Open Connect initiative. It compared high-definition content to Apple's Siri, saying that companies often adopt new features only on older platforms. "On the engineering side, you can focus on a new use case... By doing that, we can be more efficient, not going through middlemen." It's probably not something that will satisfy ISPs, but Netflix is confirming that Open Connect is more than a technical requirement.

The Verge
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