Home Media Magazine - October 26-November 1, 2008 - (Page 24) NEWS Netflix Subs Growth Is Below Expectation Continued from page 1 www.homemediamagazine.com Hundreds Fly to ‘Tinker Bell’ Premiere 9% from an increase of 286,000 net subs last year. “That’s disappointing news,” admitted CFO Barry McCarthy. Total subs exceeded 8.67 million and projections for the end of the year range from 8.85 million to 9.15 million, down from a previously projected range of 9.1 million to 9.7 million subs. Netflix cited the “markedly deteriorated” economy for the reduced subscriber estimate. Hastings said subscriber growth in the current quarter was down 30% from last year. “The current economic recession means continued subscriber growth for Netflix, but not as fast as last year,” he said. Hastings said earnings going forward would primarily come from existing subscribers versus new subscribers, which he said bodes well given the current economic climate. “This is the real power of the subscription model,” Hastings said. Stacey Widlitz, analyst with Pali Capital in New York, said the lower subscriber growth would eventually hurt earnings over an extended time period. In the short term, however, Widlitz said fewer new subs actually helped Netflix since it generates higher gross margins on older subs that typically rent less frequently. She said the rental service benefited from a relatively weak release schedule that resulted in lower revenue-sharing expenses. “The acquisition of rev-share rights are expensed as acquired,” Widlitz said in a note. “We expect gross margins [to decrease] as the company continues to add content to [its streaming service] without the benefit of incremental subs from its content additions.” Churn, the rate of subscribers not renewing, remained the same (4.2%) as last year. Netflix had expected a slightly lower churn rate due to the age of its subscriber base, McCarthy said. He said the state of the economy might explain the “modest headwind” experienced with churn in Q3 and what is expected in the fourth quarter. “We have not, and we are not, seeing increased levels of DVD usage as consumers trim discretionary spending outside the home in response to economic pressures,” McCarthy said. Subscriber acquisition costs (SAC) increased to $32.21 per gross subscriber from $28.89 in the second quarter — the first sequential increase in six quarters. “SAC did decline 15% from the same period last year, which means our economic model remains healthy,” McCarthy said. Hastings said Microsoft next month will issue a software upgrade to Xbox 360 users, which includes Netflix’s streaming service. Access to the streaming requires an Internet connection and membership to Xbox Live Gold ($50 annually). The CEO said consumer interest in laptop streaming was increasing and that the company will continue to invest in it as it has with TV-based streaming. He called the recent distribution agreement for higher-profile movies with Starz “very significant,” saying it circumvents a fragmented entertainment distribution channel and accelerates dissemination of content to the TV via the Internet. Hastings said costs associated with the Starz deal were factored into the streaming budget. Separately, Samsung said its Profile 1.1 BD-P2500 and Profile 2.0 BD-P2550 Blu-ray players with a free firmware upgrade (available Oct. 23) will allow Netflix subscribers to stream movies and music (from Pandora music service) via the Internet directly to the television. Analyst Widlitz said the content deal with Starz and others with CBS and Disney did nothing to improve the bottom line, including gross margins. Instead, she said the nonexclusive agreements translate into increased expenses. “Adding new content encourages more current subscribers to stream more often,” she said. “However, we do not believe it encourages new subscribers [to join Netflix] … especially in the current environment.” When asked whether streaming consumers would negatively affect DVD rentals, Hastings said the typical streaming consumer differed from typical DVD subscriber; so comparing the two wouldn’t make sense. “There is no good control of what those people would have done,” he said. “Our value-add is in our Web site, on-demand streaming and linking with DVD distribution.” Photo by Alex Berliner©Berliner Studio/BEImages By Chris Tribbey alt Disney Studios Home Entertainment drew more than 700 people to the El Capitan Theatre in Hollywood Oct. 19 for the worldwide premiere of Tinker Bell. The screening preceded the Oct. 28 DVD and Blu-ray Disc releases of the film. Following the film, Disney invited the children and their families to play Tinker W Bell games and to meet Tinker Bell herself, and her friends, at a party at the Hollywood and Highland center. Among those at the party were (L-R) John Lasseter, chief creative officer of Pixar and Disney Animation Studios; Tinker Bell; Bob Chapek, president of Walt Disney Studios Home Entertainment; and Dick Cook, chairman of The Walt Disney Studios. Circuit City Faces Challenges Continued from page 1 Xbox Backers Promote Streaming Services Continued from page 1 Nocas and Microsoft showed off a part of its line-up, previewing film pilots from David Slade (30 Days of Night) and Andrew Douglas (The Amityville Horror). Next week John Clisham’s Janitor will be available for download, followed Nov. 19 by the launch of the “Horror Meets Comedy” series. The movies will be available at the same time Xbox Live users get content from Netflix, Disney, MGM, NBC Universal and Warner Bros. The launch will happen across 26 countries, Nocas said. The move reaffirms Microsoft’s commitment to streaming and downloading, instead of physical disc, Nocas said. He acknowledged that Microsoft — which supported high-def format war runner-up HD DVD — has no plans for Blu-ray Disc at this time. He said Xbox users can download movies in 720p and “we’ll provide a 1080p experience when it makes sense for our users.” Director Lucky McKee (The Woods) said he jumped at the opportunity to do a short film for Xbox Live. “It’s just a purely fun exercise, and it goes straight to people’s living rooms,” he said. “We just need more people to download, download, download.” Director James Gunn (Slither, Dawn of the Dead) said the multitiered release of the content gives it a chance to succeed. “This is so much more exciting to me than “I would concur that the market “This includes assessing the pro- probably has the best guess as to ductivity of our asset base and mak- what is going to happen with the ing decisions that are in the best company.” long-term interest of Circuit City Tom Arnold, professor of finance and our stakeholders,” Babb said. at the University of Richmond and Circuit City reported losses of longtime observer of Circuit City’s more than $239 million in the most operations, believes any possible recent financial period, compared store closures won’t be enough to to losses of $62 million during the save the chain. Attempts to liquidate prior-year period. inventory would probably fall short The chain previously said it had given the economy and hint of banksuspended 16 of 26 planned store ruptcy, he said, which would likely openings for fiscal 2009 and that all drive consumers to go elsewhere out store openings slated for fiscal 2010 of concerns Circuit City would not had been postponed. be able to honor extended warranties Analysts have had Circuit City on a or returns. deathwatch for some time. “The holiday season has yet to “You can tell what the stock market start, and this news puts Circuit thinks based on the stock price,” said City decidedly behind its competimainstream films,” he said. analyst Edward Woo of Wedbush tors,” Arnold said. “It does not look Los Angeles resident Bernardo Di- Morgan Securities in Los Angeles. good.” girolamo, 28, said streaming and download options like Xbox’s are L A T E FL A SH ES “convenient, quick and easy,” but said people still want DVDs and I AMAZON POSTS PROFIT 18% from 38% growth last year. Blu-ray too. “I like to have the actual Spurred by sales increases in media, Electronics sales, which include Blu-ray item. Like The Godfather, I need to which includes DVD, Blu-ray, music and players and HDTVs, totaled $950 million, have those actual discs,” he said. electronics, Amazon.com reported third- up from $631 million last year. While Jake Zim, COO of Safran Digital quarter (ended Sept. 30) profit of $118 growth in electronics increased more Group, said digital delivery of conmillion, compared with $80 million in net than 50%, sales growth actually fell 3% tent is just a piece of the distribution income during the prior-year period. from 54% growth last year. pie. “It’s a big part of the future. It’s The Seattle-based online retail beheAmazon does not break out sales of a fragmented release window right moth said media sales increased to $1.2 specific product categories. now, and the digital world flattens billion, compared to $1 billion last year. Overall revenue topped $4.26 billion, these windows,” he said. “The stuThe 15% increase in domestic growth of up 31% from $3.26 billion last year. dios move very slowly. They’re remedia sales, however, actually declined — Erik Gruenwedel sponding to consumer demand, but not as fast as they could.” HOME MEDIA MAGAZINE (ISSN 1934-9882) is published weekly 51 times per year (weekly except for one week at the end of December) by Questex Media Group, Inc., 306 West Michigan Street, Suite 200, Duluth, MN 55802. Subscription rates: $49.99 for one year in the United States and Possessions; $79.99 for one year in Canada and Mexico; all other countries $99.99 for one year (by surface mail). Add $75 annually for air-expedited service. Single copies (prepaid only): $6.99 in the United States, $8.99 in Canada and Mexico, $13.99 all other countries. Back issues, if available: $9.99 in the U.S.; $15.99 in Canada and Mexico; $26.99 for all other countries. 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Table of Contents Feed for the Digital Edition of Home Media Magazine - October 26-November 1, 2008 Home Media Magazine - October 26-November 1, 2008 Contents News TV DVD KidVid Reviews Research Top 20 DVD Sellers Top 20 Rentals and Top 10 Charts Just Announced Home Media Magazine - October 26-November 1, 2008 Home Media Magazine - October 26-November 1, 2008 - Home Media Magazine - October 26-November 1, 2008 (Page Cover1) Home Media Magazine - October 26-November 1, 2008 - Home Media Magazine - October 26-November 1, 2008 (Page Cover2) Home Media Magazine - October 26-November 1, 2008 - Home Media Magazine - October 26-November 1, 2008 (Page 1) Home Media Magazine - October 26-November 1, 2008 - Home Media Magazine - October 26-November 1, 2008 (Page 2) Home Media Magazine - October 26-November 1, 2008 - Home Media Magazine - October 26-November 1, 2008 (Page 3) Home Media Magazine - October 26-November 1, 2008 - Home Media Magazine - October 26-November 1, 2008 (Page 4) Home Media Magazine - October 26-November 1, 2008 - Contents (Page 5) Home Media Magazine - October 26-November 1, 2008 - News (Page 6) Home Media Magazine - October 26-November 1, 2008 - News (Page 7) Home Media Magazine - October 26-November 1, 2008 - News (Page 8) Home Media Magazine - October 26-November 1, 2008 - News (Page 9) Home Media Magazine - October 26-November 1, 2008 - News (Page 10) Home Media Magazine - October 26-November 1, 2008 - News (Page 11) Home Media Magazine - October 26-November 1, 2008 - TV DVD (Page 12) Home Media Magazine - October 26-November 1, 2008 - TV DVD (Page 13) Home Media Magazine - October 26-November 1, 2008 - TV DVD (Page 14) Home Media Magazine - October 26-November 1, 2008 - KidVid (Page 15) Home Media Magazine - October 26-November 1, 2008 - KidVid (Page 16) Home Media Magazine - October 26-November 1, 2008 - Reviews (Page 17) Home Media Magazine - October 26-November 1, 2008 - Reviews (Page 18) Home Media Magazine - October 26-November 1, 2008 - Reviews (Page 19) Home Media Magazine - October 26-November 1, 2008 - Top 20 DVD Sellers (Page 20) Home Media Magazine - October 26-November 1, 2008 - Top 20 Rentals and Top 10 Charts (Page 21) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page 22) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page 23) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page 24) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page Cover3) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page Cover4) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page P1) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page P2) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page P3) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page P4) Home Media Magazine - October 26-November 1, 2008 - Just Announced (Page P5)
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