LOS GATOS, CA – Despite adding almost 3 million new global customers, Netflix reported the first net loss in its seven year history for the first quarter of 2012, which it blamed on rising content costs.
In a note to shareholders on Monday, CEO Reed Hastings and CFO David Wells said that Netflix ended the first quarter of 2012 with 26.6 million global streaming members and a $4.6 million loss.
In its sixth quarter since launching international operations, the streaming service reported 3.06 million international subscribers, which now account for nearly 12% of its total (and 10% of paid) customers (international figures include Canada, Latin America, the U.K. and Ireland.)
Noting that Canada continues to be a “strong market”, Netflix said that it ended the quarter with nearly double the Canadian subscribers it had a year ago, (placing that number at approximately 1.6 million), and predicted that its Canadian operations will be “sustainably profitable” next quarter.
“Even with our continued content investment, we anticipate a small contribution profit in Canada in Q2 and will remain profitable in this market going forward”, the note reads. “This is a quarter earlier than our January expectations for Canadian profitability, made possible by the continued strength of member growth and increased efficiency of our marketing spend. Long-term, we intend to steadily increase our contribution margin in much the same way as we are doing for our U.S. streaming business.”
The addition of new content, including CBC hits Arctic Air, Dragon’s Den and Mr. D, helped to drive increased engagement and hours viewed in Canada during the quarter, the note continued.
Netflix said that it now views original programming as “a strategic expansion” after exceeding its targets on its series Lilyhammer in terms of PR, viewing, and critical acclaim. It also announced that a new 13-part series called Hemlock Grove will premier in 2013.
“(W)e are now treating (original programming) as a capability we should build, like international, to achieve our long-term ambitions”, continued the note.
For the first quarter ended March 31, 2012, international revenue of $43.4 million was in-line with expectations, while a contribution loss of $102.7 million was better than anticipated due to slightly higher revenue combined with lower than expected content, subtitling and marketing expenses.
Looking ahead, Netflix said that it expects that Q2 2012 international subscriptions to range between 3.45 to 4.0 million, and that its international contribution loss will sequentially improve to a range of between ($98) and ($86) million.
It also anticipates returning to global profitability in Q2, and plans to launch in its next international market in Q4.
