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Netflix books a healthy profit thanks to higher prices

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The streaming service came in just shy of 100 million subscribers

Photo by Amelia Holowaty Krales

Netflix reported a healthy profit for the first three months of 2017, but missed its own projections for revenue and subscriber growth. It booked $2.64 billion in revenue and added just under 5 million new subscribers. Thanks to higher prices and a maturing business overseas, Netflix reported a net income of $178 million, more than six times the profit it had during the same period last year. It should cross the 100 million subscriber milestone easily next quarter.

“Our year-over-year streaming revenue growth is benefiting from a price change in mid 2016, and will moderate over the course of the year to track membership growth more closely,” the company wrote in its quarterly letter to investors. “We are seeing a small but steady migration to our 4-stream, 4K-UHD-HDR video quality tier, which is our high end plan. That will keep revenue growth slightly above membership growth.”

The California company has a commanding lead over its peers in terms of subscribers at a time when a number of large tech and media firms are building their own streaming services. Netflix addressed the trend in today’s letter:

Our investors often ask us about ecosystem change, such as the advent in the US of virtual MVPDs (like Sling, Playstation Vue, DirecTV Now, YouTube TV and Hulu’s forthcoming service). We believe VMVPDs will likely be more directly competitive to existing MVPD services since they offer a subset of the same channels at $30-$60 per month, and may appeal to a segment of the population that doesn’t subscribe to a pay TV bundle. But we don’t think it will have much of an impact on us as Netflix is largely complementary to pay TV packages. Our focus also is on on-demand, commercial free viewing rather than live, ad-supported programming.

The company also reiterated its strategic commitment to avoiding live sports. “Additionally, investors ask us about Amazon’s move into NFL football. That is not a strategy that we think is smart for us since we believe we can earn more viewing and satisfaction from spending that money on movies and TV shows.”

Netflix has moved deeply into the business of creating original content, and the money it’s spending to craft new programming now far outweighs what which it spends to license content from more traditional film and TV producers. It didn’t have any major hits during the last quarter of 2016, releasing titles like Iron Fist, A Series of Unfortunate Events, and a standup special from Dave Chappelle. But none of this programming had the same blockbuster success as House of Cards or Stranger Things.

The company seemed to acknowledge this in its investor letter, noting that moving the release of big shows like House of Cards to the second quarter had delayed a surge in signups, but that it expected this coming quarter to perform better than usual. And the company basically told skeptical investors to piss off, noting, “We have come to see these quarterly variances as mostly noise in the long-term growth trend and adoption of internet TV.”