Netflix reveals $US39m sexual harassment charge, record subscriber gains

Clarie Foy and Matt Smith in season two of the Netflix original series The Crown – billed as the most expensive costume drama ever made.
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Netflix shares – already on a bull run over the past six months – jumped 9% in after-hours trading today after it revealed its December quarter results, pushing its market cap over $US100 billion.

The streaming video giant increased pricing over the quarter. And its results commentary notes increasing competition from the likes of Amazon Prime, Disney's pending launch of an online service and its increased stake in Hulu (where it has bought out Fox); Apple (which has recently moved into original programming), Facebook and Google’s YouTube Red and Play.

But that didn’t stop Netflix adding a record 8.3 million subscribers in the three months to December, with 6.36 million of those outside the US.

The company has 117 million paid subscribers worldwide, 25% more than the year-ago quarter.

In January, Hulu (owned by Disney, Time Warner and NBC owner Comcast), said its paid subscriber numbers had increased to 17 million, buoyed by the success of its original series The Handmaid's Tale.

Amazon does not break out a membership number for its Prime service but analysts have put it between 80-85 million – and it's not clear how many use the video element of the catch-all Prime membership, which also includes music streaming and free delivery of physical goods.

Record revenue
Netflix revealed a number of one-off challenges, related to currency movements and profit repatriation to the US, plus a $US39 million charge related to “unreleased content we’ve decided not to move forward with.”

But that didn’t stop the company’s quarterly profit jumping to $US186 million from the previous quarter’s $US129 million on revenue that jumped 33% to a record $US3.3 billion (taking total revenue for 2017 to $US11.2 billion). 

As ever, profit was considerably bolstered (this time to the tune of $US62 million) by Netflix' DVD rental business in the US which, while unfashionable and declining, remains lucrative.

All metrics were ahead of the company’s guidance and the analyst consensus. Netflix also offered an upbeat forecast for the first three months of 2018, predicting it would add a net six million subscriptions.

Original content expands
As with other recent quarterly briefings, chief executive Reed Hastings credited Netflix’ expanding slate of original content for its accelerating growth in subscriptions and profit.

The CEO says in a letter to shareholders that his company will spend between $US7.5 billion and $US8.0 billion on content this year (analysts say about half goes to original content). That's nearly double the budget of any US free-to-air network but only neck and neck with paid sports channel ESPN and moneybags Amazon.

Kevin Spacey's House of Cards has collapsed.

$US39m 'societal reset' charge
On a conference call, chief financial officer David Wells offered the extra detail that the $39 million write-off was “related to the societal reset around sexual harassment.”

Kevin Spacey’s name was never mentioned but it was widely assumed the charge related to Netflix decision not to screen – or, at least, stream – remaining episodes of House of Cards, and its decision to shelve a Gore Vidal biopic starring the disgraced actor.

Netflix shares [NAS:NFLX] rose 3% in regular trading, then another 9% in after-hours action as its fourth-quarter result was reported.

Murky local picture
As usual, Netflix had no commentary specific to its Australia-New Zealand division and did not provide a New Zealand customer number. But it did note growth outside the US was evenly spread.

The main local development over the quarter was the launch of Vodafone NZ’s Vodafone TV – a service that centres on Sky TV content but also includes a Netflix app (as well as TVNZ and MediaWorks apps). The quarter also saw the continuation of Lightbox owner Spark’s free Netflix for a year promotion, which began in February 2017.

At its 2017 annual results briefing, Sky TV reported 79,936 active users across its Neon and Fanpass streaming services, up from a year-ago 53,570 (it did not break out a number for each).

At its most recent update, in November 2017, Spark said it had nearly 300,000 Lightbox subscribers. However, the company refused to say how many were on a free-access promotion offered to Spark broadband customers.

Market researcher Roy Morgan has consistently given Netflix a big lead in viewership in the local market, with twice Lightbox' numbers. However, hit hasn't updated its survey for nearly a year.

Also in contention is Quickflix — the online video offering that just refuses to die. The service is being rebooted by Fairfax as Stuff Pix.

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7 Comments & Questions

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Yep, while the more forgiving jurors are still sequestered over the future of Kevin Spacey, I'm betting, his career has been deep-sixed.

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Live by the sword, die by the sword

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House of Cards had become boring anyway, so in spite of Spacey's habit of sexually pestering young gay and straight men, I think that series was done.

I have noticed that with a number of Netflix series. The first season starts out very strong while the second is much weaker. It's almost as though they put a lot of thought and effort into the first season of their shows, with the expectation that it might flop and be cancelled. But then they get a hit on their hands and start scambling to put out a second season to capitalise on the success of the first. But it's not as well thought through in terms of the narative, the plot, and where the story is going and where it's going to end. It feels rushed.

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Agree with your comment about a number of Netflix series starting strong then tailing off noticeably in the second season.

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Notable exceptions though. The Crown and Stranger Things fantastic second seasons.

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Fair call. The Crown actually got better in S2. Thought Stranger got a little circular in S2 but will still be there with bells on for S3.

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Netflix formula just screams winner!

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