Netflix boosts subscriber estimates

By Danny King -- Video Business, 2/27/2008

FEB. 27 | Netflix said today that its subscriber count will be about 3% higher than previously forecast because of price increases from rival Blockbuster and cheaper online advertising rates. The company also said it would quadruple its Blu-ray selection this year and hinted at a possible partnership with Microsoft.

The largest U.S. movie-rental service via mail projected that it will have as many as 8.26 million subscribers on March 31, up from its earlier forecast of 8.05 million, the company said today. Netflix also boosted the low end of its first-quarter revenue forecast by $1 million to $324 million.

A late-fourth-quarter price increase in Blockbuster’s Total Access online subscription service helped Netflix accelerate new subscriber growth while causing existing subscribers to spend more, chief financial officer Barry McCarthy said at the Jeffries 4th Annual Internet Conference in New York today. Lower online advertising rates from reduced online spending by financial services companies have allowed Netflix to spend less on attracting new subscribers, McCarthy said.

“There aren’t many times in the company’s history when we’re firing on all cylinders,” McCarthy said. “Q1 is one of those times.”

Netflix spent $49.5 million in online ads in January, up from $24.4 million a year earlier, according to Nielsen/NetRatings data. Netflix trailed only online comparison-shopping site NexTag and credit-report service Experian among U.S. online advertisers, the research firm said.

Netflix said last month that it boosted its subscriber base last year by 18% to 7.48 million. Fourth-quarter revenue for Netflix increased 21% to $302.4 million, the company said Jan. 23. Blockbuster, which reports fourth-quarter earnings next week, said in November that it doubled its Total Access subscribers to 3.1 million for the year ended Sept. 30, 2007. In December, it hiked the monthly subscription costs for online subscribers that exchange movies at stores by as much as $10.

McCarthy also said today that Netflix will add as many as 1,500 Blu-ray titles to its existing 400 titles this year as customers ditch Toshiba’s discontinued HD DVD format and converge onto a Sony’s Blu-ray format. He said he didn’t know what effect more Blu-ray titles would have on earnings.

“It seems apparent that content will cost us more,” McCarthy said. “Whether we raise prices will be entirely a function of churn, subscriber acquisition costs and gross margins.”

McCarthy hinted that reports of Netflix joining forces with Microsoft to offer movie downloads may be true. MSNBC reported last week that Netflix, which last month started a partnership with LG Electronics to develop a set-top box allowing video-streaming directly to customers’ TVs, could provide films through Microsoft’s Xbox Live multiplayer games service. Netflix CEO Reed Hastings joined Microsoft’s board of directors last March.

“One big announcement has been rumored,” said McCarthy today, adding that analysts should “expect more announcements.”