Netflix just reported Q3 '10 results and the eye-catching number is 1,932,000 net subscribers added in the quarter, a new record for the company, and almost 4x as many as the 510,000 it added a year ago in Q3 '09. Netflix ended Q3 '10 with 16,933,000 subscribers, almost double the 8,672,000 subscribers the company had 2 years ago, at the end of Q3 '08. Revenue was up 31% to $553.2 million.
Netflix ascribed the growth entirely to streaming, with CEO Reed Hastings saying in a statement, "By every measure, we are now primarily a streaming company that also offers DVD-by-mail." That's the first time I've heard this positioning, and it is only partly true, as only 66% of subscribers watched 15 minutes of streaming video in Q3 (though up from 61% in Q2 '10), whereas my guess is that 95%+ of the company's subscribers still take out at least 1 DVD each month and the volume of overall viewership must still tilt heavily toward DVDs. (see update below)
Still, as I outlined earlier today, Netflix has made tremendous progress in transitioning to the streaming model, adding tons of new content and compatible connected devices in Q3. The record number of subscribers also sent the company's subscriber acquisition cost (SAC) to a new low of $19.81, 26% lower than a year ago. Churn was 3.8%, equal to Q2 '10's record low. Netflix increased its year-end guidance to 19-19.7 million ending subscribers. That's up from 15.5-16.3 million that it forecast for year-end 2010 back on January 27th. What a 9 months it has been for the company.
More info following the earnings call this evening.
Update - here are selected highlights from the after hours earnings call:
- On the point of relative viewing time, Reed clarified that Netflix tracks how many DVDs are delivered and assumes each is watched once. It also tracks how many minutes of streaming it delivers. Based on these numbers, Netflix concluded that it generated a higher number of total minutes viewed via streaming than it did on DVD. In addition, its data shows that more than 50% of Netflix subscribers now watch more than 50% of their Netflix-based content on streaming, rather than on DVD.
- As far as new devices go, the next big focus is on Internet-connected TVs and the investment focus for current devices is on improving the UI, navigation and overall experience (e.g. not requiring discs with Wii or PS3 any longer). Reed also added that lots of people begin watching on one device and then continue or finish watching on another device, since Netflix streaming has the "resume playing" feature that works across devices.
- With respect to cable and cord-cutting, in one comment Reed characterized Netflix as a competitor to cable video services (the first time I've heard him say that), but in another comment he said that its research still shows no increase in cord-cutting among its subscribers.
- Reed conceded there is some vulnerability if broadband ISPs switch to usage-based billing, particularly if they have relatively low monthly caps (such as AT&T's 2 MB cap for iPad users). Though it's too early to tell where things shake out, the only mitigating solution he offered was to focus on SD rather than HD to reduce file sizes.
- DVD shipments are still growing as a whole, but there are geographies (such as the Bay area) and subscribers for which DVD shipments are declining.
- Working on and Android app right now, no update on release timing.
- Marketing in Q4 will be lower as a percent of revenue and quarter over quarter as Netflix absorbs a high one-time expense associated with the EPIX deal.
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