Netflix announced its first quarter results today, and the numbers were even better than most analysts anticipated. The company grew to a total of 14 million subscribers by adding 1.7 million new members in the first quarter of the year. On the earnings call, Netflix CEO Reed Hastings attributed his company’s decreased churn (customer turnover) and lower subscriber acquisition costs to increases in its streaming service.
According to Hastings, Netflix is lowering the cost of adding new subscribers through positive word of mouth, availability across multiple devices and several recently struck deals with major studios that have helped increase its catalog of streaming titles. Hastings also chalked up Netflix’s reduced Q1 churn rate to an increase in subscribers who are using the company’s streaming service.
Here are some other highlights of the call, as reported by NewTeeVee:
- The biggest competitor Netflix sees isn’t Redbox kiosks or on-demand services from Amazon, Vudu or other, but comes from improved service offerings from traditional pay TV distributors. “There are a lot of competitive threats… But cable, satellite, and telcos improving their products is probably the biggest threat,” Hastings said.
- Based on rumors that Hulu could enter the market with a subscription service offering, Hastings said it too could pose competition to Netflix’s streaming service. However, it’s too early to tell how much of a threat Hulu might be. “We’ll see what they do,” Hasting said.
- Netflix isn’t concerned about Redbox potentially entering the streaming market at a much lower price point than its own entry-level $9 a month subscription service: “Redbox does many things incredibly well, but we’re not worried about them as a streaming competitor,” Hastings said.
- The reduction in average revenue per user (ARPU) generally doesn’t come from existing subscriber trading down to lower-priced subscription plans, but rather from the increase of new subscribers that are signing up to Netflix’s $9 a month plan. In fact, Netflix had more existing subscribers trade up during the quarter than it saw trade down, according to Netflix CFO Barry McCarthy.
- For now, Netflix doesn’t see the Apple iPad as a significant contributor to subscriber additions. “In the long term the iPad is a great device that has a lot of potential,” Hastings said. “But in the short term, when you compare it to the 30 million users that have a Wii, it’s not a huge contributor.”
- Despite record additions and an increase in the number of users tuning in to its streaming service, Netflix is still seeing growth in its DVD-by-mail service. “Our DVD shipments continue to increase,” Hastings said. “DVD’s got a lot of legs.”