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Netflix CEO Reed Hastings speaks during the unveiling of the iPhone 4 at the Apple Worldwide Developers Conference in San Francisco, California June 7, 2010.
Credit: Reuters/Robert Galbraith
By Sue Zeidler
LOS ANGELES |
Thu Oct 21, 2010 6:16am EDT
LOS ANGELES (Reuters) - Netflix Inc, which rose to success with its by-mail DVD rental service, may add a streaming-only service in the United States this year, as it expands its reach in the digital market.
The company also reported on Wednesday another quarter of strong subscriber growth, and its shares rose in after-hours trading.
Its Canadian streaming-only service -- where users pay to watch video instantly off the Internet -- is a hit and on track to become profitable in late 2011, encouraging Netflix to test this model in its home market.
Shares in Netflix -- known for its signature red envelopes and mail-in DVD rentals -- jumped more than 9 percent after it posted better-than-expected third-quarter subscriber growth.
"Three years ago we were a DVD-by-mail company that offered some streaming," Chief Executive Officer Reed Hastings said, adding Netflix will spend more in the fourth quarter on streaming content than on DVDs. "We are now a streaming company, which also offers DVD-by-mail."
"Pure streaming could become Netflix's core offering in the U.S., with discs being offered as a supplement for an additional charge," Hastings said.
Netflix has undergone phenomenal growth since its 1999 debut. Its shares have gained many-fold since a 2002 IPO.
But concerns persist now about the rising cost of paying studios to stream more movies and TV shows, amid intensifying competition and lofty-looking share valuations.
Netflix has paid a big price to provide content through partnerships with EPIX pay TV channel, estimated at $1 billion, and NBC Universal, a unit of General Electric Co.
It has a deal with Starz due to expire in 2011 or 2012 and analysts believe the pricing on that deal, estimated at $50 million to $60 million per year, may double or triple.
Epix is owned by Viacom Inc's Paramount Pictures, Metro-Goldwyn-Mayer Studios and Lions Gate Entertainment Corp.
STARZ STUDDED
Netflix competes against companies like Hulu Plus, Coinstar Inc's Redbox, which is soon launching a streaming service, and Google. Amazon.com Inc has also considered an online video subscription service.
Netflix's Gross margins fell sequentially to 37.7 percent in the third quarter from 39.4 percent in the second quarter.
Hastings told analysts on a conference call he was upbeat about a Starz deal.
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