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Netflix Q2 profits plummet

July 25, 2012

Netflix Q2 earnings plummeted 91 per cent as the online movie rental company posted higher subscription costs, though subscriber rolls kept improving.

The company, which provides streaming movies over the Internet as well as DVDs by mail, added 530,000 US subscribers to its online video service from the previous quarter, bringing the total to 23.9 million. Customers who rent DVDs totalled 9.2 million, down 8.4 per cent sequentially. It had 3.6 million subscribers in its international business, up 18 per cent.

The company in April estimated a total of 23.6 million to 24.2 million online-video subscribers in the US in the second quarter. It predicted 3.5 million to 4 million international subscribers. Financial services company Raymond James was looking for 24.1 million in the US and 3.87 million internationally.

The company last year warned it would post losses in 2012 because of the cost of expanding into the UK and Ireland. The company has also invested in initiatives such as exclusive rights to air new episodes of TV shows such as Arrested Development.

For the latest quarter, Netflix posted a profit of $6.2 million, down from $68.2 million a year earlier. Revenue grew 13 per cent to $889.2 million.

In a letter to shareholders, the company claimed a 16 per cent share of UK Box Office year-to-date, compared to an estimated 5 per cent for LOVEFiLM’s streaming service.

It also admitted that when the service launched in the UK and Ireland in January 2012, it recognised that Sky would be its primary competitor in the UK, and now potentially face increased competition from Sky’s new OTT service – Now TV – at £15 per month, more than double Netflix’s price. “This is Sky’s first foray into a pure-play OTT streaming product and will likely be marketed aggressively. Our content libraries are mutually exclusive with no overlap of titles; as such, many households may subscribe to both services,” said Netflix.

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