Netflix shows recovery in streaming business

A substantial number of subscribers are shifting from hybrid service to streaming only.

By Trefis Jan 30, 2012 2:42PM
Image: Watching television (© Frare/Davis Photography/Brand X/Corbis)Netflix (NFLX) recently released its fourth-quarter and full-year 2011 results. As the company returned to growth in terms of net unique subscribers, the stock jumped significantly. We have raised our fair value for Netflix to $133, which now stands at a premium of about 15% to the market price.

The earnings highlighted a couple of things -- Netflix is back on growth track and DVD subscribers continue to decline substantially. A little confusing? The point is that customers are not leaving Netflix as much as before and a substantial decline is coming from subscribers dropping hybrid service and moving to streaming only.

Netflix's competitive advantage over other video rental companies, such as Dish Network's (DISH) Blockbuster, Hulu and Amazon (AMZN), still remains.

Netflix US Streaming Subscribers


While Netflix lost over 800,000 subscribers in Q3 2011, it gained more than 600,000 subscribers in Q4. This is something that the market was not expecting. Our price estimate has stood at a significant premium to Netflix's market price for some time now and some of that premium was hinged on our expectation that Netflix would return to subscriber growth in Q4 2011 or Q1 2012.

Netflix has started to recover from the temporary slump resulting from its new pricing plan. The majority of the subscriber losses resulted from DVD subscribers quitting the service. This rate has come down and most of them seem to be just downgrading to streaming services, and thus we expect unique subscriber count to grow. In fact, Netflix has stated that, so far for Q1 2012, the net subscriber additions are tracking the rate observed in Q1 of 2010.

Netflix has also stated that DVD declines will continue each quarter, and forever. In fact, Netflix lost 2.76 million DVD subscribers in Q4 of 2011 and further expects to lose another 1.5 million subscribers in Q1 of 2012. We have updated our analysis and as a result of this continuous decline, DVD business holds very low value for Netflix now, at around 5%.

See our complete analysis for Netflix.

Jan 30, 2012 6:22PM

At some point soon, I will end up dumping Netflix 100%.  The online streaming library hasn't improved and I can find what I want via Amazon's library on a pay as you go basis.  The monthly subscription fee isn't much money but we're noticing that we're using it less and less each month. 


I'm not concerned with their price increase but don't increase the price if service isn't gonna improve! 



Jan 30, 2012 3:52PM

I would drop the DVD in the mail if more of the good movies coming out were available to watch instantly.  Thats the only reason I keep both.

Jan 31, 2012 11:58AM
My family of 5 still has both sides of Netflix, we live in a rural area with the largest town within 100 miles is only 30,000.... so its not so easy to go to the corner and rent a dvd.... We literally use Netflix Streaming every single day, and watch 3 DVD's a week.... we have no problem with delivery which seems to still be about 3 days turn around...  By the way many times we will have Netflix streaming on 2 devices and still other people online...sometimes its slow but we don't expect magic when it comes to any technology, there are always limits.

Just thought the other side should be presented in the wake of all these negative comments..

Jan 30, 2012 9:24PM
In my humble opinion, Netflix is one of the best companies there are here in the USA. In all. it's a very good deal at a cheap price.
Jan 30, 2012 8:41PM
When i start streaming a movie and go back to finish it and its on dvd only that is wrong in so many ways.
Jan 30, 2012 6:39PM
I dont have the time to wait for dvds in the mail , i want to be able to pull up netflix at work  , on my downtime and watch instantly , while i eat lunch ..  So what if i dont get to watch the whole thing today , come tomorrow on my lunch break , i can pick up where i left off .. I called netflix to complain about the selection of instant movies , i was told its because of liscensing that the selection is low , so im hopeing that it improves big time in 2012 .. I would consider paying a little extra for better variety .. Netflix is the best around , a flat fee for all the instant u can watch , cant go wrong with that
Jan 31, 2012 12:34PM
It's funny how people complain about a $7 service. Do you think movie studios would allow Netflix licensing of unlimited streams to movies that cost 100 million dollars to make? Movie have to make their money back and rentals is a big chunk of their return. Americans are so hypocritical. We complain about manafacturing jobs going overseas but have no complaints about paying $15 for a pair or jeans at Wal-Mart. We need some basic training on economics. There is no way you're going to get brand new releases and pay $7 a month to watch all the new movies for as many times as you want. The studios, the cable companies, and every form of movie media would be out of business.
Jan 31, 2012 1:02AM
Well, I agree with the guys that said Netflix was a good deal.  Who cares if you can't get all the NEW movies.  Most of the older ones are much better than the new ones anyway. And I am sure that everyone has not seen ALL of the movies that they have  on Nexflix....If you have, then you spend entirely too much time watching movies.  Also the older TV shows are very good and they too are usually much better that the new TV shows.  IF you can't find something interesting to watch on Netflix, then you are not trying. Even if you start watching all of the original Star Trek episodes, then move on to all of the other Star Trek tv shows, it will keep you busy for months.  Then there are many, many others plus the movies. The new movies will be on sooner or later anyway. just be patient.
Jan 31, 2012 3:46PM
we love netflix. there is only one problem . we wish they would start streaming newer movies

Jan 31, 2012 1:09PM

I've said it before, and I'll say it again:

Nextflix is still the best entertainment value. for about 14 bucks a month, I get unlimited streaming, and one DVD physically mailed to me at a time, with a turn around of roughly 3 business days.

That's WAY better, for me, (and cheaper) than cable, dish, or anything. Now, it works for me because I like Anime, foreign films, star trek, and cheesy horror. All of which are well represented on netflix instant view. I keep the DVDs for new releases. Cable has no competition in my state, and charges 100/month for 99% programming I'll never watch. With commercials.

Netflix rules, IMO.

Jan 30, 2012 6:22PM
I would have kept my 2 at a time DVD plan + streaming, had they not changed the prices. That's a lost of almost $100/year for Netflix. If thousands of others did the same thing, they'll continue to forgo millions of possible revenue a year. Go back to the way it was!!!!
Jan 30, 2012 8:09PM
you can't expect to stream new movies or movies that are selling on pay per view but they should have the movies that are being shown on hbo, sho,and max for streaming if they did that they could charge more and people would flock to netflix
Jan 31, 2012 9:54AM
Netflix movie quality is going down and down. I find myself spending more time searching for something to watch then actually watching. Thinking real serious of just going with Amazon since I'm a prime member and the majority of what  I decide to watch is available there anyway so why pay twice. Seems netflix spends there time now finding movies the are NOT in English and listing them as the new releases for the week. Not interested
Jan 30, 2012 10:06PM
well just closed my account with netflix because the streaming is just awful.  It is no longer a good value for what you get and until they do something drastic to improve the movie selection I can save money and watch the junk that's on TV. 
Jan 30, 2012 11:53PM
The problems with Netflix started when they tried to skin loyal customers by charging separately for streaming when streaming didn't have anything to offer. Streaming still doesn't have anything to offer unless you like to sit around and watch really old movies/reruns and about 10% of the content available in the DVD service. The DVD service never was up to date either, compared to Blockbuster. And nowhere near the number of titles that Blockbuster has available. Yes, I used to be a subscriber with Blockbuster for a long time, until they started jacking with the service and kept hacking off subscribers. I finally switched to Netflix's DVD service, they didn't have streaming at the time. After Netflix started streaming, I didn't really care that they didn't have much content, it was kind of a bonus since it was "free". It was Netflix's attitude in splitting off the streaming service that turned people off. Streaming still has very little old content and woefully late in current offerings, compared to Redbox. Netflix needs to get their act together fast, the streaming model is what subscribers now want. Streaming, with faster current offerings and old content volume at least equal to the DVD service.
Jan 31, 2012 10:06AM
Ummm, once people find out that the streaming content for Netflix is horrible, more will drop out.  When Netflix only gets 5 out of the top 100 movies during the year, people will start dropping.  They are also losing some big series' as well.  It's like they want you to pay more for less content, totally feckless.
Jan 30, 2012 3:57PM
This article does not say that a lot of those new customers Netflix counted were from Free trial subscriptions. Netflix also does not make nearly as much profit on streaming only subs and they do on combo subs.
Jan 31, 2012 3:23PM
The trouble is the selection of movies that Netflix has is poor. Plus, movies that they have do not stay permanently available to watch. Sometimes I want to rewatch a movie or finish watching one I started and it is no longer offered. This has happened many, many times. I guess for every new movie they add they have to remove one.
Jan 31, 2012 2:25AM

I have had a Netflix account for more years than I can remember.  I wasn't unhappy when they separated the DVD and streaming accounts.  I am actually paying less for DVDs only.  I want to see the new releases.  Plus, I have an old TV and do not have the streaming capability.  I grew up with the mind-set that you don't buy a replacement until the one you have no longer works.  I really want a flat screen HD TV,  and I can afford it, but I won't get one until my current one dies.

Jan 30, 2012 9:45PM

Not really that surprising.  They stopped making stupid decisions, people signed up again.  That shocks people?  They made several dumb decisions in a row, peeved off their consumer base, and now that things are back to normal people want the cheap, likeable service they provide.  I think its an amazing deal to get all that streaming for that tiny monthly charge.  Haven't had cable in almost 8 years, will never go back so long as companies like Netflix are offering smart deals.


But they have to STAY smart to keep us.  You listening, NF?

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