Netflix reported its second quarter earnings today, and the big number was 50 million members. Not all of these are paid subscribers: there are roughly 2 million customers that are enjoying free trial accounts, but it's still an important milestone as Netflix expands around the globe and does battle with big cable and telecommunications companies in the US.
The company reported 1.34 billion in revenue and earnings per share of $1.15, both numbers right on line with Wall Street's expectations. That means Netflix earned more than double the profit it did in the second quarter of 2013, when it reported earnings per share of $0.49. Netflix now has 36.24 million US subscribers and 13.8 million international subscribers. That's roughly 25 percent growth for domestic subscribers and 77 percent international growth on a year over year basis.
Netflix noted that its international growth, particularly in Latin America, was driven by smart TV adoption, a trend accelerated by the World Cup. "Post World Cup, the number of Smart TVs used for Netflix viewing in Latin American countries is at a new high; in fact, the percentage of viewing from Smart TVs in Latin America is higher than any other region we serve," the company said in its letters to investors.
Netflix announced last quarter that it would be raising its prices by $1 a month on new subscribers, with older customers grandfathered in at their current rates. That price hike went into effect in May, but Netflix said in its letter to investors that it had "minimal impact" on subscriber growth. Netflix also announced over the last quarter that it would begin paying fees to Comcast and Verizon for a direct interconnection that would improve the quality of customer's video streams. Those payments appear to also have had a negligible impact on its bottom line.
On the earnings call today Netflix CEO Reed Hastings discussed his ongoing debate with ISPs like Comcast and Verizon over paid interconnection fees. He was asked by an analyst why Netflix doesn't have the same kind of leverage as an ESPN or HBO. Hastings said that Netflix, even as it grows, would not move to an HBO model, where the content creator can charge the distributor for the right to carry its programming. Instead, he advocated a settlement free market which he believes would be the best structure to reward all parties and drive innovation.