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Netflix: Online Streams to Surpass DVD Rentals

Company expects users to watch more movies and TV shows online in the fourth quarter than they will on DVD.

DVDs are so yesterday, judging by what's happening with the company that made a fortune by stuffing them in envelopes and mailing them to subscribers nationwide.

Netflix users will watch more movies and TV shows streamed online than they will on DVD during the fourth quarter, the company said Wednesday in announcing impressive quarterly results.

Netflix said 66% of its users watched something streamed during the third quarter, up from 41% during the same quarter a year ago. Because so much content is viewed streamed, Netflix said it no longer will bother to report the metric.

"By every measure, we are now primarily a streaming company that also offers DVD-by-mail," Netflix CEO Reed Hastings said.

Answering a question from a skeptical analyst Wednesday, Hastings said that Netflix compares minutes streamed to the length of every DVD shipped. Minutes streamed during the fourth quarter will exceed the number of combined minutes of all DVDs mailed to subscribers.

On the financial front, third-quarter earnings rose 26% to $38 million on revenue up 31% to $553 million. The company added 1.9 million subscribers to end the quarter with 16.9 million.

Netflix also lifted its guidance, saying it will end the year with up to 19.7 million subs; previously, it predicted up to 18.5 million.

Churn fell from 4.4% a year ago to 3.8%, and subscriber-acquisitions costs dropped 26% to $19.81.

Shares of Netflix rose 3% during Wednesday's regular session to $153.15 and an addition 9% after hours once third-quarter results were released.

Hastings said Wednesday that even though streaming will overtake DVDs, he won't shut down distribution centers anytime soon as they are needed to ensure quick delivery.

He also said Netflix subscribers, while rabid fans of streaming premium video, are not TV "cord-cutting" at a rate larger than the general population.

Hastings said Netflix streamers are doing so on several devices, given that they might use a game console in one room and a Blu-ray Disc player in another while using an iPhone for their mobile needs.

The CEO made it clear that streaming is overtaking DVDs even as Netflix increases the number of discs it ships.