Red envelopes, black ink: Netflix delivers in 4th qtr.

CEO unfazed by Apple, other rivals

Netflix topped expectations when it reported fourth-quarter financial results Wednesday, and CEO Reed Hastings told analysts that he's not worried about competition from Apple and others that are in the movies-on-demand business.

Referring to devices that meld TV with the computer — like Apple TV — as "background noise," Hastings predicted a healthy future for DVDs because the format represents big profits for studios and consumers prefer it to VOD by a wide margin.

When the day comes that Internet-delivered movies and cable VOD go mainstream, Netflix already has its competing service — once dubbed Watch Now but more recently seems to be nameless. That service works on computers and by year's end should work on TV sets through consumer electronics devices.

Hastings also said Netflix has seen a slight surge in demand for Blu-ray Discs over HD DVD since the Consumer Electronics Show this month that coincided with an announcement from Warner Bros. that it intends to support Blu-ray exclusively.

"Definitely, the winds are shifting to Blu-ray," he said, adding that a win in the next-generation DVD format war by either party would boost Netflix's business.

Netflix said net income grew from $14.9 million in the same quarter last year to $15.8 million on revenue that rose 9% to $302.4 million.

The company ended the quarter with 7.5 million subscribers, a net addition of 451,000. Netflix said it should have 7.9 million-8.1 million subscribers by quarter's end and as many as 8.9 million by year's end.

Blockbuster, Netflix's primary competition, said that it had 3.1 million subscribers to its DVD-by-mail service at the end of the third quarter last year. It said then that it would no longer report subscriber numbers going forward.

Blockbuster had, in 2005 and in 2007, launched an aggressive campaign of price cuts and other incentives to lure online users to its service and away from Netflix, but more recently it has focused on profits over growth.

While those were "painful" times for Netflix, Hastings said he doesn't expect to revisit that sort of cutthroat competition anytime soon.

He also said that Redbox — a company with 6,000 kiosks that rents DVDs for $1 a day — is far more competition for Blockbuster and other companies with bricks-and-mortar stores than it is for Netflix.
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