Netflix To Take Its Streaming Business International Next Year

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What a difference 10 months can make … Netflix (NSDQ: NFLX) CEO Reed Hastings unveiled the company’s plans to take its business international next year — albeit streaming-only, not mail-order rentals. “We’re looking to the second half of 2010 to make our streaming offering international,” he said, during the company’s Q309 earnings call. “The plan is to start small in one market, prove out our model, and expand into other countries.”

That’s a marked contrast from his sentiments in January, during Netflix’s Q408 earnings call. Hastings told investors that he wasn’t sure there was “enough content and a large enough ecosystem” to make international streaming successful then.

Clearly, rapid adoption of its streaming service, and possibly, less difficult negotiations with studios for digital content rights, have changed the company’s collective mindset. No word on which country or territory Netflix plans to launch in first though — the better to maintain a competitive advantage, Hastings said.

New streaming metrics: Netflix provided hard numbers on its streaming business for the first time, metrics Hastings said would become part of the company’s earnings report from now on. Around 42 percent of the company’s 11.1 million subscribers streamed at least 15 mins of content in Q3; that’s up from 22 percent for the same quarter last year. Hastings said a “most subscribers” watched more than 15 mins, but that the company was using that time frame — which he likened to the length of a typical TV show, sans commercials — as its preliminary benchmark.

Working with the studios, not fighting them: Kiosk-rental service Redbox seems content to fight the studios over their imposed rental-delay windows in court; Hastings said Netflix’s plan is more collaborative. “Some of the DVD sales decline is due to tighter consumer budgets, but some of it is also due to $1 rentals,” he said. “If some studios choose to support a delay [to help prevent that] it would shrink the rental market — but grow their revenues.” Since Netflix is “less dependent” on new releases, Hastings said the company would be open to supporting the studios if they moved to that model. And if the studios choose to not sell to Netflix at all? The company can still buy titles from third-party retailers — or even the robust used DVD market. “Buying used saves us money,” Hastings said.

Postage costs: Netflix expects its postage costs to top the $600 million mark in 2010; by 2011, that expense will pass $700 million. “But as we license more content for streaming, that enormous expense will start to shift to the content owners,” Hastings said. He said the rate of evolution — and ultimately, cost savings — would depend both on how quickly Netflix could license more streaming content, and an increase in homes that had “Netflix-ready” devices. The company is also investing $43 million on a suite of rental return machines that will “open, inspect and clean” returned DVDs, which would ultimately reduce costs in the long run. Hastings expects the machines to be installed nationwide over the next 18 months.

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