Dobb blog

Netflix's star shines in 4Q, adds 3.1M subscribers

SAN FRANCISCO – Netflix Inc.'s video subscription service topped 20 million customers during the fourth quarter to help push its earnings beyond analyst expectations and burnish its reputation as a stock-market star. Its shares surged 10 percent on the news.

The results announced Wednesday are the latest evidence of Netflix's increasingly important role in the distribution of home and mobile entertainment. As Netflix's influence has risen, so has its stock price. The shares tripled last year to give Netflix a market value of nearly $10 billion — more than some of the studios that supply the content for its DVD-by-mail and Internet video streaming service.

The lofty valuation has intensified the pressure on Netflix to keep attracting subscribers at a rapid pace.

Netflix delivered in the fourth quarter by reeling in 3.1 million subscribers, by far the most during any three-month period since its service launched in 1999. The performance also exceeded the most optimistic predictions of its own management.

The company, based in Los Gatos, said it believes the current quarter could be even better. It expects to gain as many as 3.7 million more subscribers in the U.S. and Canada by the end of March.

Netflix shares soared $18.97 to $202 in Wednesday's extended trading after the results were released. The stock finished the regular session at $183.03, down $3.71.

In a departure from its past practice, Netflix didn't provide a full-year forecast, partly because executives say it's becoming more difficult to accurately forecast the company's rate of growth over such an extended period. For instance, Netflix began 2010 with a projection calling for the addition of 3.6 million subscribers during the full year and wound up picking up 7.7 million.

Another variable clouding the outlook: Netflix unveiled plans to enter its second international market during the second half of this year after expanding into Canada last fall. The company didn't identify which new market it's targeting, but said it anticipates an operating loss of about $50 million on its international operations in the second half of the year.

The Canada service is supposed to start making money during the third quarter.

Netflix earned $47.1 million, or 87 cents per share, during the final three months of last year. That was a 52 percent increase from $30.9 million, or 56 cents per share, last year.

Analysts surveyed by FactSet expected earnings of 71 cents per share.

Revenue rose 34 percent to $596 million from $445 million a year earlier. That figure merely matched analyst estimates.

Netflix has been benefiting from the demise of video rental stores and the widening popularity of its Internet streaming option as it has become available on video game consoles, Blu-ray players and other set-top boxes that easily connect to TVs. A variety of applications also have turned the streaming feature into a more enjoyable experience on TV-like tablets such as Apple Inc.'s iPad and a range of smart phones.

Although DVDs are expected to remain a key part of its service, Netflix is investing heavily to bring more compelling material to its streaming library and pulling financial levers to encourage its subscribers to use the option more frequently to help reduce the company's expenses for mailing discs back and forth.

Netflix spent $174 million on video streaming rights in the fourth quarter, a nearly eight-fold increase from $23 million at the same time in the prior year. It also raised its DVD prices and introduced an $8-per-month plan for U.S. subscribers who only want to stream Internet video. The company said about one-third of its new customers are signing up for the streaming only plan, with most others opting for a $10-a-month plan that includes one DVD rental at a time. Most existing subscribers are sticking with the plans they already had.

The shift means the number of DVDs the Netflix originally mails out annually probably peaked last year, CEO Reed Hastings said in a Wednesday interview. Just last year, Netflix had predicted its DVD shipments would peak in 2012.

As Netflix has prospered, it has turned into a bigger threat to cable TV services, particularly premium channels such as HBO and Showtime. HBO has steadfastly refused to sell its streaming rights to Netflix and Showtime isn't making as much material available as it once did.

Netflix's streaming library includes a lot of recent movies from the Starz channel as part of a licensing deal signed in October 2008, but analysts are worried the company won't be able to get the renewal rights. Netflix said Wednesday the Starz deal expires early next year, and told investors it didn't plan to discuss the negotiations any further.

For all of 2010, Netflix earned $161 million, or $2.96 per share, on revenue of $2.16 billion. That compared with net income of $116 million, or $1.98 per share, on revenue of $1.67 billion in 2009.

North Carolina edges Miami 74-71

CORAL GABLES, Fla. – Harrison Barnes sank a 3-pointer with 6.6 seconds left, and North Carolina overcame an early 14-point deficit to beat the Miami Hurricanes 74-71 Wednesday night.

The Hurricanes have lost their past three games by a total of seven points. The latest defeat came despite the Hurricanes' scoring 16 consecutive points in the first half.

The Tar Heels (14-5 overall, 4-1 Atlantic Coast Conference) have won seven consecutive games against Miami (12-8, 1-5).

Barnes sank a 15-footer with 1:09 left to tie the score for the 11th time, at 71, and when the Hurricanes' Reggie Johnson missed an inside shot, the Tar Heels got the ball back.

Following a timeout, Barnes took a pass from Kendall Marshall and swished a shot from the right side. Miami's Malcolm Grant missed a 3-point try with one second left that would have forced overtime.

Gates heads to Canada for talks on war, weapons

WASHINGTON (AFP) – US Defense Secretary Robert Gates departed for Canada on Wednesday for talks on the war in Afghanistan as well Ottawa's plans to purchase F-35 fighter jets, the Pentagon said on Wednesday.

Gates initially was due to meet both his Canadian and Mexican counterparts at a first-ever summit of North American defense ministers but Mexico's secretary of national defense, General Guillermo Galvan Galvan, could not attend due to illness, press secretary Geoff Morrell said.

An earlier attempt at a three-way meeting of the defense chiefs in July had to be scrapped because of a spike in violence in Mexico, he told a news conference.

Talks on Thursday with Canadian Defence Minister Peter MacKay would cover "ongoing US-Canada defense issues and areas of cooperation, including, of course, our mutual efforts in Afghanistan," Morrell said.

Amid sharp political debate in Canada over the government's plans to buy F-35 Joint Strike Fighters, Morrell acknowledged it was "a hot button issue" that would come up for discussion.

He said international partners were vital to keeping costs under control for the radar-evading fighter, which has been dogged by delays and rising costs.

"Our partners are needed, obviously, because the more quantity you buy, the price-per-copy will drop," he said.

"So we are obviously always trying to work with those countries that are committed to this, to keep them committed because it's for the overall good not just of the program, but of our defense posture around the world."

On the war in Afghanistan, Gates was expected to express appreciation to Canada for extending its military mission after lobbying from Washington.

Despite a deadline to bring all Canadian troops home by July 2011, the government plans to send 950 military trainers to a base in Kabul until 2014 in a non-combat role to advise Afghan soldiers, following the withdrawal of its 2,800 combat troops from Kandahar in the south.

Canadian troops have spent nearly nine years fighting insurgents as part of NATO's International Security Assistance Force, an effort that has cost over 150 Canadian soldiers' lives.

Barron returns from doping ban at Q-school

HUMBLE, Texas – Doug Barron shot a 2-over 74 in the first round of the second stage of qualifying school Tuesday, his first round on the PGA Tour since his ban for violating the tour's anti-doping policy was lifted.

"It felt great out there, the juices were flowing this morning," Barron said. "The first couple of holes felt like the final round of a PGA Tour event. I felt totally in control of my body. Which is a good thing."

Barron was the first player suspended under the drug policy, missing part of 2009 and most of 2010. The one-year suspension was lifted in September, with Barron granted a therapeutic use exemption for low testosterone. His lawsuit against the PGA Tour has been settled.

The 41-year-old Barron had two birdies, two bogeys and a double-bogey six on the par-4 16th hole at the Redstone Members Course, former site of the Shell Houston Open.

He was eight shots behind the early leaders, with the top 20 or so golfers advancing to the Q-School finals in December.

Starting on the 10th hole on a sunny and cool opening round, Barron made three straight pars before bogeying the par-3 12th hole. He rebounded with a birdie on the par-4 13th.

A double bogey on the 16th hole dropped him to 2 over and he had a bogey on the par-4 third hole. He finished with a 15-foot birdie putt on the par-4 17th.

"My target score was 70 today, so I was four strokes over that, but I still feel like my game is in good shape," Barron said. "I really feel like I'm going to make it past second stage and get my playing card for 2011. Then I will be nervous on the first tee next year."

Former U.S. Amateur runner-up James Driscoll, who missed the cut in 13 of 26 events this year, held the early lead with a 6-under 66. He lost his PGA Tour card this year despite making $500,000 and finishing 153rd on the PGA Tour money list.

Australian Matthew Goggin was alone in second among early finishers at 69. Longtime Houston resident Craig Kanada was third with a 70.

Hulu Drops Price on Hulu Plus to $7.99, Adds Roku

Hulu on Wednesday dropped the price of its subscription-based Hulu Plus service from $9.99 per month to $7.99 per month.

Hulu Plus also launched today on Roku.

With this move, Hulu Plus is officially out of the preview stage, Hulu chief executive Jason Kilar wrote in a . Any users who signed up in the last few months at the $9.99 rate will be issued a credit during their next billing cycle, he said.

To draw users to the service, Hulu will offer one-week free trials to all new Hulu Plus subscribers. Those who joined during the preview period, meanwhile, will get an additional credit for one week of Hulu Plus; people who sign up via Hulu Plus's referral program will get two weeks free.

On the device front, customers who buy a Roku device through December 15 will get one free month of Hulu Plus; Roku boxes start at $59.99. As , those who purchase a Sony Bravia connected TV or Blu-ray player will also get $20 worth of free Hulu Plus as well.

"We're highly encouraged by the response we've received to the Hulu Plus service during the preview period," Kilar wrote. "Though the service has only been in preview for part of this year, Hulu Plus is already accounting for a material percentage of Hulu's overall business. But we're even more excited about where we plan to take the service in the months and years to come."

Hulu Plus is available on the PC, but also on Apple's iPad, iPhone 3GS, iPhone 4, and third-generation iPod touch, Samsung TVs and Blu-ray players, and Sony Bravia TVs, Blu-ray players, andpersonal Internet devices, as well as the . In the coming months, Hulu Plus will be added to Internet-connected Vizio, LG Electronics, and Panasonic Blu-ray players and HDTVs; TiVo Premiere DVRs; the Xbox 360; and Western Digital's WD TV Live Hub Media Center and WD TV Live Plus Network Media Player, and more, Kilar said.

The price drop could be in response to competition from Netflix. The DVD-rental company's lowest monthly price in the U.S. is currently $8.99 for DVD rentals plus streaming. But Netflix has said it is ; it currently offers a streaming-only service in Canada for $7.99 per month.

Hulu Plus provides full-season access to TV shows on Hulu; free access is still available on Hulu.com for recent episodes.