Netflix Takes Crown: Now Biggest Subscription Video Company

Announcing Q1 earnings, company warns of increased competition in the streaming market and higher costs from international expansion; plans to license two or three more “smaller” original programs

Last Updated: April 25, 2011 @ 8:09 PM

Netflix used its quarterly earning announcement Monday to tout a new milestone: the fast-growing company has taken the crown as the biggest subscription video services provider in the U.S.

After adding more than 3 million subscribers to its rolls, the rental giant now has 23.6 million users.

The next largest company, Comcast lags behind with 22.8 million customers for its video service. 

Yet when premium cable channels are taken into account, Netflix still cannot match the more than 28 million subscribers under the HBO umbrella. 

Moreover in a note to shareholders, Netflix warned that there are fresh threats to its kingdom ranging from premium VOD to DirecTV's plans to rejuvenate Blockbuster. In particular, the company cited increased competition from rival streaming services such as Hulu Plus and added costs from the company's efforts to expand internationally. 

As for the Los Gatos, Calif-based company's fiscal picture, Netflix beat analyst expectations for the first quarter of 2011, bringing in revenue of $719 million on $1.11 earnings per share. It reported net income of $60.2 million. 

Also read: Why Hollywood Should Be Afraid of Netflix … Very Afraid

According to a survey of market watchers,  Netflix was expected to earn $1.07 a share in the first quarter of 2011 on revenue of $705.7 million. However, it fell 1 million subscribers short of predictions that it would have added 3.7 million new members by the end of the period. 

In other areas, the company continued its explosive growth, as earnings were up 88 percent while revenues jumped 43 percent. During the same period last year, Netflix posted earnings of 59 cents on revenue of $493.7 million.

Despite the record growth, there have been mounting concerns about Netflix's acquisition costs. The company paid as much as $1 billion in an agreement last summer with Epix to stream the cable company's movies, and Netflix spent big recently to enter the original series game by outbidding HBO and others for the rights to Kevin Spacey's "House of Cards." 

Though cable analysts had anticipated that Netflix had been forced to overpay to lure Spacey to such an unconventional platform, the company said costs were in line with what it spends on other content.

It also implied that it planned to license two or three "smaller" original programs. 

Having launched a streaming-only service in Canada last year, Netflix said it is poised to put a foothold in a second international market. Yet doing so will result in a $50 to $70 million operating loss in the second half of the year, the company predicted. It plans to expand into a third international market in early 2012. 

Still Wall Street wasn't entirely satisfied, Netflix fell 3.6 percent in after hours trading to close at $242.52. In part, the dissatisfaction had to do with Netflix's lower than expected revenue forecast. Netflix foresees second-quarter earnings coming in behind analysts predictions, with profits of 93 cents to $1.15 a share, under Wall Street's predictions of $1.19 a share.

Revenues, however, are better than the Street's $763 million estimate, with Netflix forecasting $778 million to $798 million for the next quarter.