In the age of technology, we have grown accustomed to having what we want when we want it. This is especially true for television, and with Netflix, Inc. (NASDAQ:NFLX) our demands are met. Netflix provides internet television service to computers, televisions, and mobile devices domestically and internationally. With online streaming and by-mail DVD deliveries, it is one of the most convenient ways to enjoy television and movies. But Netflix has more going for it than convenience.
Netflix, Inc. (NASDAQ:NFLX) is working on content as its competitive advantage. The company has exclusive contracts for content from Turner Broadcasting and Warner Brothers, allowing it to stream shows from TNT, Warner Bros. Animation, Cartoon Network, and Adult Swim.
Netflix has also invested in new, original programing such as the popular House of Cards, Arrested Development, and Hemlock Grove. These new shows are released by season, rather than by episode, allowing the customer to decide when they will watch the show. This strategy created positive media buzz that helped promote Netflix, Inc. (NASDAQ:NFLX)’s new shows.
There was also worry that customers would use one of Netflix, Inc. (NASDAQ:NFLX)’s free monthlong trials to watch the shows, then cancel their subscription. Of the millions of Netflix trial users, only 8,000 canceled their subscription during the most recent quarter when the shows premiered. This proved that releasing compete seasons of original content is the right move for Netflix.
Most recently, Netflix, Inc. (NASDAQ:NFLX) struck a deal with Dreamworks Animation Skg Inc (NASDAQ:DWA) to provide 300 hours of original programming for children. This is an extension from the deal the two companies made to produce the original show Turbo F.A.S.T. This content deal will allow DreamWorks to utilize characters received in its $155 million acquisition of Classic Media, including He-Man, Casper, Waldo, and Rocky and Bullwinkle. The new deal will also allow DreamWorks to rely less on box office success while getting a larger return from the characters in past films.
For Netflix, the Dreamworks Animation Skg Inc (NASDAQ:DWA) deal has given the company independence from nonexclusive, bulk contracts. The company is letting its contract with Viacom expire, losing shows such as Dora the Explorer and SpongeBob Square Pants.
DreamWorks CEO Jeffrey Katzenberg is excited about the agreement, stating, “This is an unprecedented commitment to original content in the internet television space. Netflix is a visionary company that continues to redefine the way audiences watch television.”
While important, original programming is very expensive. Netflix has $5.7 billion in long-term content contracts and is spending $100 million on House of Cards alone. Content costs are also largely responsible for the company’s negative free cash flow of $42 million.
Last quarter, Netflix posted net income of $3 million, which yields an earnings per share of only $0.05. During this first quarter, the company added more than 3 million streaming members, each paying $7.99 a month for access to the company’s library of 75,000 titles. These new members bring the total number of members to 36 million, who have watched a combined 4 billion hours of television on Netflix.
Domestic new membership is responsible for 2.03 million of these users. Domestic streaming contribution margin increased by 20.6% as a result of this membership growth outpacing content spending.Netflix’s international membership totals 7.1 million, after a 1 million-member increase during the most recent quarter. This resulted in an international revenue of $142 million, which is substantially more than the $42 million international revenue the company had during the same quarter last year. The international market is not yet profitable and recently had a contribution loss of $77 million. This is $28 million improvement, and Netflix plans to continue to international expansion.