Netflix reveals $US39m sexual harassment charge, record subscriber gains

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 111 million paid subscribers worldwide (and 118m total), 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.”

Yet the company’s quarterly profit jumped 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 $US39 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.