Mark Sweney 

Netflix non-US losses hit $100m but subscribers increase

Online media provider reports major losses in non-US business in first quarter after UK launch, but growth of 1.2 million subscribers. By Mark Sweney
  
  

Losses at Netflix's operations outside the US ballooned to more than $100m (£62m) in the first quarter, as the impact of its launch in the UK and Ireland hurt financially but fuelled growth of 1.2 million subscribers.

Netflix reported a global loss of $5m as its US operation, which accounts for 88% of of its 26 million subscribers and 95% of revenues, balances the financial damage of its international expansion.

The online media provider, which made $60m in profit in the first quarter of 2011, was pushed into a global loss in the first three months thanks to its launch in the UK and Ireland on 9 January.

This pushed losses at its non-US operations from $60m in the fourth quarter of 2011 to $103m in the three months to the end of March.

However, subscribers to its international services, which are available in more than 40 markets outside Netflix's home market of the US, grew 65% from the previous quarter to 3.07 million by the end of March. Of these, 2.41 million were paid subscribers; the remainder of users are on free trial deals.

Revenues at the international operation grew by 48% to $43m.

Given that between the third and fourth quarters of 2011 international subscriber numbers grew 25% and revenues grew by 26% – versus respective growth rates of 65% and 48% between the fourth quarter of 2011 and the most recent quarter to the end of March – Netflix said that the UK and Ireland operation was the largest driver of growth in international members.

Netflix does not provide a breakdown for the performance of individual markets.

"We launched our service in the UK and Ireland in January and are very pleased that, after the first 90 days, we had substantially more members than we had after the first 90 days of Canada or Latin America," said Hastings. "From the start, we achieved the highest net additions we've ever seen in the first 90 days of an international market launch."

Netflix is forecasting a loss of between $86m and $98m from its international operations in the second quarter. Canada will deliver a "small profit".

"We expect Latin America and the UK and Ireland to take longer than eight quarters to reach sustained profits [about the time it took Canada] as we build membership and invest in content improvements," said Hastings.

Netflix warned investors in October that the launch in the UK and Ireland would push the company into a global loss in the first quarter, and that it would "pause" further expansion until it returned to profitability.

On Monday Netflix confirmed that it would return to global profitability in the second quarter and that it would launch into an "attractive" new European market in the fourth quarter this year.

Spain is tipped as Netflix's next market launch, joining Latin America, Canada and the UK and Ireland.

Netflix added 1.74 million subscribers to its core US business in the first quarter, taking total US subscriber numbers to 23.41 million. But the shares plummeted almost 17% in after-hours trading as markets were underwhelmed by projections on growth.

Netflix's guidance for its second quarter is for about 600,000 new streaming customers. Analysts were looking for more than 1 million.

"We see nothing new or particularly concerning this quarter to date in our member viewing, acquisition and retention," said Hastings. "All are healthy".

Global revenue for the three months to 31 March was $870m, compared with $876m in the previous quarter and $719m in the first quarter of 2011. The company made a profit of $60m in the first quarter of 2011.

Netflix said that it expects to add about 7 million subscribers to its US operations in 2012.

Hastings said that if the Competition Commission breaks Sky Movies' stranglehold on Hollywood films on pay TV and on-demand TV, then Netflix may look to accelerate its plan to bid for one of the crown jewel content contracts from one of the big six US film studios. BSkyB currently holds all the deals on an exclusive basis.

"That then may provide an opportunity for Netflix to bid earlier for major studio deals than otherwise would have been the case," said Hastings. "It is premature to know how it will play out."

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