Netflix Surpasses 20 Million Subscriber Mark; Q4 Revenue Up 34%

UPDATED: Netflix has surpassed 20 million subscribers, capping off a growth spurt so strong that it has surprised even the company’s top management while providing more cash to satisfy the hunger for increasingly expensive streaming content.

Netflix on Wednesday posted fourth-quarter net income that increased 52% to $47 million on revenue that grew 34% to $596 million.

Netflix added 3.1 million subscribers in the quarter, putting it past the 20 million mark by 10,000, enough for it to overtake Sirius XM and DirecTV as the No. 2 subscription media business in the U.S. behind Comcast, which boasts 22.9 million subs.

Netflix predicted that it would end the current quarter with as many as 22.8 million subscribers, or 23.1 million if Canada is included.

Netflix had forecast more than a year ago that it would add just 3.6 million subscribers to its ranks in all of 2010, though it more than doubled that, adding 7.7 million last year. Management gives credit to the popularity of its on-demand streaming product.

“Our huge subscriber growth, fueled by the excitement of watching instantly, impressed even us,” CEO Reed Hastings and CFO David Wells wrote in a letter to shareholders.

“More subscriber growth enables us to spend more on streaming content, making the Netflix service even better in 2011.”

The letter acknowledged that some in Hollywood are cautious about Netflix’s value to them. They didn’t name names, but Time Warner executives have been publicly skeptical about whether Netflix is friend or foe.

“Stepping back, some consternation about Netflix success is natural,” said the letter. “Like the rise of the Fox broadcast network 20 years ago, a new entrant bids up the price of content, and the incumbent aggregators are not pleased.”

The pair said later during a conference call with analysts that it has gotten easier to strike deals since they are paying more and that content rightsholders have been reaching out to them.

Along those lines, MGM board member Jason Hirschhorn defended Netflix in a rather colorful tweet shortly after Netflix disclosed its quarterly financials. “Hollywood execs complain Netflix not fairly compensating for content? WTF am I missing? If you don’t like deal then don’t do it. Just STFU.”

Netflix shares fell 2% during the regular session Wednesday to $183.03 but were surging more than 10% in afterhours trading.

Netflix also said it will expand beyond the U.S. and Canada — where it began operating last fall — though executives didn’t identify which part of the world it intends to conquer next.

“We think our subscriber growth in any given geography will follow the S curve of adoption, and we are excited to still be in the accelerating phase of the S curve today,” Hastings and Wells wrote.