Netflix has shown that the high costs involved in spreading its service to more markets worldwide was worth it as the company reports a surprising profit in 2012 driven by significant growth in membership.
Worldwide, Netflix gained 10m members in 2012, bringing its total to more than 33m subscribers. More than 6m of these members now come from international markets as Netflix spent much of 2012 expanding its reach to a total of 40 countries.
Despite the investment involved in growing the business internationally – including a particularly costly launch in the Nordic countries – Netflix still managed to turn over a profit in 2012, reporting a full-year net income of US$17m from revenue of US$3.6bn.
Higher than expected growth of international subscriptions and revenue meant that the loss in Q4 was lower than expected. Netflix also noted that the holiday season was an end-of-year boost as people received Netflix-ready devices as gifts.
Focus on original content for 2013
While 2012 marked Netflix’s drive for global dominance, the company isn’t planning on reaching out to more new markets until late 2013, early 2014, and no final decisions have been made yet on where to go next.
The focus for 2013 seems to be on creating original content, with the company seeing 1 February – the debut of Netflix original series House of Cards, when all 13 episodes will be released at once to all markets – as a defining moment in the development of internet TV.
“Imagine if books were always released one chapter per week, and were only briefly available to read at 8pm on Thursday. And then someone flipped a switch, suddenly allowing people to enjoy an entire book, all at their own pace. That is the change we are bringing about. That is the future of television. That is internet TV,” read a letter from CEO Reed Hastings and CFO David Wells to Netflix shareholders.
Netflix believes the strength of internet TV lies in how it removes the constraints of broadcast television. With Netflix and similar services, the audience is allowed to grow over time, creators aren’t limited by TV slot time frames, and viewers can watch when they please. Between that and access to exclusive original content, which will grow to include Hemlock Grove on 19 April and the long-awaited-for fourth season of Arrested Development in May, Netflix is confident that 2013 will be a strong year.
Meanwhile, Wall Street’s confidence in Netflix’s strategy was shown when shares jumped by 35pc in after-hours trading following publication of these results.