Increasing online video consumption has once again proven to be a tailwind for Netflix, Inc. (NASDAQ:NFLX). In its first quarter results, Netflix, Inc. (NASDAQ:NFLX) posted revenue of $1.024 billion, beating the consensus estimate of $1.016 billion. This quarter showed strong online subscriber growth in both the US and international markets. In the US, the company reported net subscriber growth of 2.03 million against the consensus estimate of 1.75 million, and in the international market it experienced growth of 1.02 million, marginally beating the consensus estimate of 1 million.
However, its DVD offerings continue to experience subscriber loss, although the loss came in under expectations. In the first quarter, its DVD subscriber loss was 0.241 million compared to the 0.394 million estimate.
Netflix, Inc. (NASDAQ:NFLX) is betting big on its original content strategy. This strategy is the main reason behind the gains in subscribers in the US. Under this, the company is focusing on bringing out its own content which is not available on any other platform. Its TV series — like House of Cards, Lilyhammer and Arrested Development — are paying off. House of Cards was a significant driver for good performance in the first quarter. Furthermore, the subscribers who signed up to watch House of Cards remained with the company even after the series ended.
However, there are also concerns about the rights of the original content. Netflix, Inc. (NASDAQ:NFLX) doesn’t own rights to these series. It had contracts with the series’ production houses and will pay part of the cost in return for exclusive rights to stream video on demand. This means that these series will be available on other platforms too. For example, its highly popular series House of Cards’ DVD will be released in June. It is also expected that a commercial television broadcast of this series will begin once Netflix, Inc. (NASDAQ:NFLX)’s exclusive license expires.
In the fourth quarter earnings call, Netflix compared its original content with Time Warner Inc (NYSE:TWX)’s HBO. If we compare HBO with Netflix, Netflix is clearly lagging in terms of original content. HBO currently has around 15 new original series in production, and 63 older comedy and drama series. Out of these 63 series, there are a few very famous ones like The Sopranos, Sex and the City, The Wire, and Da Ali G Show. Netflix’s frequent comparison of itself with HBO has created a consumer perception that Netflix, Inc. (NASDAQ:NFLX) owns the content, which is not true. HBO regularly recycles its programs and controls the streaming rights of the content, which helps its margins.