Netflix CEO: ‘We Are Now a Streaming Company’

Netflix now considers itself a “streaming company which also offers DVDs by mail,” according to CEO Reed Hastings in the management commentary that accompanies its third-quarter earnings release. According to Netflix, the company now spends more money on streaming content than on DVDs, and as a result consumers now stream more videos than they watch on DVD.

In the commentary, Hastings is quoted as saying:

We are very proud to announce that by every measure we are now a streaming company, which also offers DVD-by-mail. In Q4, we’ll spend more on streaming content than DVD content, and we’ll deliver many more hours of entertainment via streaming than on DVD. More impressively, a majority of our subs will watch more content streamed from Netflix than delivered by us on DVD. DVD-by-mail shipments are still growing, but streaming for us is much larger and growing much faster.

More subscribers are streaming more content than ever before, according to Netflix. It added 1.9 million new subscribers in the quarter, bringing its total subscriber count to 16.9 million, which is up 52 percent over the previous year’s third quarter. And two-thirds of its subscribers now stream content, which is up from 41 percent a year earlier and 61 percent in the second quarter.

Revenue in the third quarter grew by about 30 percent, to $553.2 million compared to $423.1 million for the third quarter of 2009. But disc shipments only grew about 10 percent during the same time period, and in some places — like San Francisco — the number of disc shipments actually declined during the period. Since the company still spends more than $500 million in disc shipments, it says it will have plenty of cash to boost the amount of streaming content it brings online.

It’s doing so aggressively, with moves such as its a five-year, $900 million deal to stream content from Epix for titles from Paramount, MGM and Lionsgate. It’s also struck an exclusive content deal with Relativity Media.

The effect has been what Hastings calls a “virtual cycle” through which it is able to attract new customers through word of mouth and is able to retain them by keeping customer satisfaction high. Subscriber acquisition costs dropped below $20, to $19.81, compared to $26.86 for the third quarter 2009 and $24.37 for the second quarter of 2010. Churn also fell during the quarter, to 3.8 percent, compared to 4.4 percent for the same period a year ago and 4.0 percent for the second quarter.

In the third quarter, Netflix launched in its first international market with a streaming offering in Canada. The company said it is on track to be profitable in Canada by the end of next year, and, if things go well it could roll out a streaming service in the U.S. soon. Hastings is quoted as saying, “Our success with our pure streaming offering in Canada at $7.99 has encouraged us to test this model in the USA. If our results are as strong as we think they will be, then we will look to start this offering later in this Q4.”

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