Home Media Magazine - October 28-November 3, 2007 - (Page 24)

NEWS Netflix Surpasses Q3 Expectations Continued from page 1 www.homemediamagazine.com Blockbuster Inc.’s exuberant marketing of Total Access than fickle movie renters. With new Blockbuster CEO Jim Keyes determined to restore profitability and same-store growth, Hastings said common sense had prevailed in the battle for online rental supremacy. “Blockbuster Online’s strategy of selling dollars for 85 cents … [was] not a viable long-term strategy,” he said. The CEO admitted price cuts enacted during the quarter helped increase Netflix subs. But he said Netflix nevertheless maintained 30% margins. The company also reduced churn (subscriber turnovers). All these were as important as Blockbuster’s sudden fiscal prudence, he said. He said the subscriber acquisition cost of $37.91 -— the lowest in eight quarters — was due in part to Blockbuster’s reduced marketing of Total Access and strong word-of-mouth. Hastings said the latter helped comparable-year total marketing costs decline 17% to $10.2 million. Hastings intimated Netflix has big plans in 2008 for its “Watch Now” PC-based movie streaming service. He said management is exploring options to facilitate streaming of movies from the Internet to the TV via Webbased high-def disc players, game consoles and/or set-top boxes with a variety of partners. The CEO said he will elaborate further in the fourth-quarter earnings call in January. In addition, citing competitive reasons, Netflix will no longer reveal movie streams. It announced 10 million total programming views about six weeks ago. Hastings also put off until January discussions of a possible price increase. He said the specter is always there, as are price cuts. “Is there enough elasticity such that with reduced marketing we end up with greater profits and greater subscribers after the price cut? That’s something we will look at,” he said. When asked about year-to-date spending on Internet-based “Watch Now” movie streaming, CFO Barry McCarthy declined comment. He also wouldn’t discuss penetration of the service among DVD renters, citing competitive reasons. Hastings said determining any cannibalistic effect on online DVD rentals by the streaming service could take up to two years. He said Netflix had no immediate plans to invest an inordinate amount of its free cash of $36 million, up from $6.5 million in Q2, in hardware subsidies aimed at underwriting a streamed service to the TV. “We weren’t contemplating any radical moves on cash flows, so you can put that one to rest,” Hastings said. CFO McCarthy said the rental service had pushed fourth-quarter guidance for net subscribers to 7.5 million, compared to a previous projection of 7.3 million. He said revenue would range from $297 million to $302 million, compared to $277 million to $287 million previously. Trippin’ on DVD Writer-director David Arquette visited the Virgin Megastore in Hollywood Oct. 23 to sign autographs and promote the arrival of his film The Tripper on DVD from 20th Century Fox Home Entertainment. (L-R): J.J. Caruth, director of marketing for Fox; Arquette and Chris Reichert, director of publicity for Fox. CLASSIFIED SHOWCASE PA C K A G I N G U S E D TA P E S & D V D S Last quarter McCarthy said expectations for profitability in Q4 and fiscal 2008 appeared challenging. He doesn’t think so anymore. “That view now seems overly pessimistic,” he said. Netflix expects to post Q4 income from $6 million to $11 million, compared to a previous projected loss of $1 million to $4 million. Hastings said Movie Gallery’s bankruptcy underscored the premise that any video store closure is a good thing for online rental. That said, he believes the first 1,000 Gallery store closures will likely benefit Blockbuster more than Netflix. “They will be right across the street from a Blockbuster, and so it is more reasonable to expect that customers will cross the street than suddenly come online,” Hastings said. He said a second wave of closures would be more helpful to the online rental market. Media analyst Michael Pachter with Wedbush Morgan Securities in Los Angeles said Netflix outperformed his lofty projections (see HM Oct. 21). “I didn’t need to be a hero and predict more than they did, but my timing was pretty good going from a [Netflix] hater to a tolerator,” Pachter said. A fervent supporter of Blockbuster Total Access, Pachter said Netflix could maintain its bullish run as long as Blockbuster doesn’t choose to compete directly. “When they are dividing the market, Netflix has some troubles competing with Total Access,” he said. “When they have it all to themselves, they should thrive.” He said it is inevitable that Netflix will take some of Blockbuster’s subscribers and that the latter will have to fight back at some point just enough to keep its customer base and not lose money. “Blockbuster swung too far to the aggressive side defending its turf, and now they may be swinging too far to the passive side,” he said. P E O P LE I SONY PICTURES PROMOTES 3 IN INTERNATIONAL GROUP Sony Pictures Home Entertainment has promoted three of its international group employees: T. Paul Miller to SVP, international, and GM, emerging markets; Claude Borna to VP, retail marketing, Europe; and Miller Orrie Dempsey to VP, customer development, Europe. Miller will report to Matt Brown, EVP, international. Borna and Dempsey will report to Simon McDowell, SVP and GM, Europe. Miller most recently served as Borna VP and GM for international emerging markets; he will now oversee strategic initiatives for international territories and manage markets in more than 60 countries. Borna, who is based in London and most recently served Dempsey as director, retail marketing, Europe, will oversee retail marketing for European territories. Dempsey, also based in London and most recently director, customer development, Europe, will now oversee customer development. – Billy Gil CLASSIFIED ADVERTISING MAKES DOLLARS AND SENSE! I NATIONAL GEOGRAPHIC CREATES GLOBAL GROUP National Geographic formed a global media group comprising its magazine, book publishing, television, film, music, radio, digital media and maps units. Tim Kelly, president and CEO of National Geographic Ventures, has been appointed president, global media. Kelly will continue to report to John Fahey, president and CEO of the National Geographic Society. Kelly, who has clocked more than 25 years with National Geographic, will head a team that includes John Q. Griffin, EVP of the National Geographic Society and president of the magazine group, as well as Nina Hoffman, EVP of the Society and president of book publishing. Additionally Kelly will continue to oversee subsidiary National Geographic Ventures, which includes film, television, music, radio and digital media, among other divisions. – Billy Gil FOR ADDITIONAL INFORMATION CONTACT: Kurt Wohlman (714) 338-6749 kwohlman@questex.com www.homemediamagazine.com 24 BLACK YELLOW MAGENTA CYAN Home Media Magazine October 28–November 3, 2007 hom102807_024.pgs 10.25.2007 19:45 ccoffey http://www.homemediamagazine.com http://www.homemediamagazine.com

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Home Media Magazine - October 28-November 3, 2007

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