Netflix: Streamers Rent Fewer DVDs

Netflix, while announcing its recession-beating fourth quarter profit (up 45 percent!) today, described expanding its video streaming business as its core focus. CEO Reed Hastings said the company is starting to see a “substitution effect” among subscribers, in which users who stream online rent fewer DVDs. “Millions” of subscribers are taking advantage of the company’s “Watch Instantly” service, which is available in unlimited form for most subscription plans.

Hastings, who said Netflix is already one of the movie studios’ largest sources of digital revenue, noted growth in streaming bodes well for the company’s profit margins since postage and packing costs will become less relevant. But that savings will be offset to some extent by higher content acquisition costs.

Netflix is in talks with all the remaining consumer electronics companies about integrating the streaming service on their devices, following Vizio, LG, Samsung and Roku. However, all this is still long-term thinking; Hastings continues to say that DVD-by-mail rentals will peak as early as 2013.

Hastings maintained that Netflix does not want to diversify its online video revenue streams, and thinks continuity around its monthly subscription brand is a better plan than breaking out into ad-supported or pay-per-view video. He said he was fine with Netflix partner Roku offering Amazon on its box, even though it’s a competitive service, as that gives customers access to things like purchase of new releases that Netflix does not offer. Netflix is “more likely to prevail with focus,” Hastings said, and subscriptions are a big enough market opportunity.

Shares of Netflix were up $2.36 to $32.51 in after-hours trading. Netflix now has 9.4 million subscribers.

For more on Hastings’ view towards the future, see his keynote at our NewTeeVee Live conference in November.

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