Netflix’s Subscriptions Are Up: Devil Is In The Details

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While most of the media is drinking the proverbial Kool-Aid about Netflix’s earning report that came out yesterday, it would have to take someone like Wired to look at the numbers and brought up some good points. While Netflix has been pushing to get people into their streaming service, it seems that in light of their profits, that most of their money is coming from the DVD rental section and not the streaming.

While many people bailed on them after their price increase last July, did Netflix seem to try and push people away a bit premature? I would think so. According to the figures (supplied by Wired) it seems that Netflix made $194 million in profit from their DVD-by-mail service and dwarfs the paltry $52 million in profit from its streaming service. Many in the media are looking that their total domestic subscriptions are up from 23.79 million last quarter to 24.4 million in Q4.

Now, if you factor in all their content deals and original programming costs into the picture their profits get eaten away fairly quickly, and the fact that it is taking it in the shorts internationally when streaming is the only option they have. Netflix lost $60 million and only has just under 2 million subscribers which is far below the domestic streaming subscription of 21.67 million.

CEO Reed Hastings may be talking up about the fact that moving away from television viewing, also known as “cutting-the-cord”, is the way of the future, it seems that Netflix may have gone and cut themselves off a bit early. In their email to investors, they tout the future with channels like Showtime and HBO moving into the mobile app community and they expect Netflix to be right there with them.

I suspect that Netflix, in an attempt to curb the growing hatred from the Hollywood community, hastened the desire to get out of the DVD/Blu-ray business than it should have. They lived out the “cut-off-your-nose-despite-your-face” out in public for all of us to see, but I truly think their motives weren’t as blind as they wanted us to be. I’m sorry but I truly want to believe they are smarter than their actions are demonstrating.

In their desire to move toward streaming, Netflix would have had to take a loss. To innovate, you have to take some sort of loss. No investor or stockholder wants to hear that. So they devise this scenario to increase fees which takes precedence in the media. Now that they can concentrate on that aspect of the company, they will be taking a bit of a loss but everyone will be focusing on the amount of subscribers Netflix has.

This is what I call a bit of “slight-of-hand” which allows stockholders and the media to say after the major exodus that numbers are strong and look like their getting better. This will cover the fact that they will have some lean years and hope to gain some traction with their streaming service and everything will work itself out. That is a helluva gamble to play, but we will see how it works out for them.

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