Netflix’s UK launch beats expectations

January 26th, 2012

This month’s UK launch of Netflix, the DVD and online video service, has “greatly exceeded expectations”, as the firm reported fourth-quarter profits that topped analysts’ estimates and a 16 per cent increase in its shares.

The US company also forecast better margins for its streaming business, which allows subscribers to watch thousands of films and TV programmes over the internet.

Its UK business is competing directly with Sky and Virgin Media, which charge subscribers fees for bundles of movie channels on top of basic packages for set-top boxes and TV channels, as well as other online film rental services such as Amazon’s subsidiary LOVEFiLM.

Speaking to the Financial Times, Netflix chief executive Reed Hastings said the service had been well received in the UK. “The UK has greatly exceeded expectations,” he said. “We’re very excited by the initial response and we’re continuing to improve the service.”

Last year the company’s shares tumbled after it lost 800,000 US subscribers following a price increase and now-shelved plans for a separate DVD business. But in his quarterly letter to shareholders, Mr Hastings said Netflix is back on track, having signed 610,000 US customers in the period to reach a total of 24.4 million – a 25 per cent increase over the previous year.

Mr Hastings said the company is investing in exclusive content for its library in an effort to attract more subscribers. However, rival online video provider Hulu is also securing exclusive content for its paid subscription service Hulu Plus, while Amazon is beefing up its online streaming service in the US and has invested heavily in LOVEFiLM.

In the shareholder letter, Mr Hastings wrote: “Both Amazon and Hulu Plus’s content is a fraction of our content, and we believe their respective total viewing hours are each less than 10 per cent of ours.

“We’re rapidly increasing the amount of money we spend on content [in the US] as well as internationally.”