LOS GATOS, CA – While Netflix’s growth in Canada has been remarkable, its second quarter subscriber numbers fell just short of its earlier prediction of a million customers by summer, and the company reported a loss for its Canadian operations of approximately US$10 million.
But with 967,000 Canadian customers now, and with a French-language version of the service recently made available here, the on-line video streamer believes it should have little trouble cracking the 1 million customer threshold by its first anniversary at the end of September.
“The key to continued growth, both domestically and internationally, is constant improvements to the service”, Netflix wrote in a note to shareholders on Monday. “We’ll be adding more content to our Canadian service and now expect that we’ll come in at between $1 million contribution loss and $1 million contribution profit in Q3.”
Netflix reported a 55% increase in profits year-over-year for the quarter ended June 30th, with net income of $68.2 million. Global revenues were $788.6 million, up 52% from $718.5 in the second quarter of 2010, while international revenues, (which at this point includes only Canada), were $18.9 million.
At the end of the quarter, Netflix had over 25 million global subscribers, up 70% from 15 million a year ago, which it credited to its “increased investment in streaming content, strong word of mouth and an expanding range of devices”. The company said that it added 1.8 million “domestic” (American) subscribers in Q2, 75% more than Q2 of last year, and that 75% of those new subscribers opted to sign up for its streaming only plan (Netflix also offers DVD by mail in the U.S). Noting the rapid adoption of streaming, the company said that “DVD shipments for Netflix have likely peaked”.
The company also said that its U.S. subscribers now have access “to a wide range of programming from all four major U.S. broadcast networks and from nearly every major cable channel, as well as thousands of films, including those in their first subscription window, from Paramount, MGM, Disney, Lionsgate and a host of mini-major and independent studios”. It detailed new agreements with Miramax and Revolution Studios for films such as Pulp Fiction, Good Will Hunting, Black Hawk Down, Across the Universe, and Shakespeare in Love.
Television shows continue to be popular, and Netflix said that its customers are now spending over half of overall streaming hours watching TV programming. Through multi-year renewals with Viacom’s media networks and NBC Universal, Netflix will offer hits like 30 Rock, Parenthood, and The Office on a prior-season basis.
“In a few days, every episode of Mad Men will become available in syndication exclusively on Netflix”, the note, signed by CEO Reed Hastings and CFO David Wells, continued. “Additional seasons will become available on Netflix once they complete their run on AMC. Since Mad Men is strongly serialized, we expect significant viewing of prior seasons as new viewers get hooked and seek the back story during the upcoming fifth season and beyond.”
After trialling its streaming only service in Canada, Netflix confirmed that it will launch in 43 countries across Mexico, South America and the Caribbean later this year. It is also planning to launch in at least one other international market, which it declined to name, early in 2012. “As in Latin America, we intend to offer a compelling mix of Hollywood, regional and local content”, the shareholders’ note continued.
Looking ahead, Netflix said that it’s made “great progress over the quarter” on its Facebook integration which will likely debut in the next few months. “At this point, we plan to launch this initiative only in Canada and Latin America, as the VPPA (Video Privacy Protection Act) discourages us from launching our Facebook integration domestically”.
