Netflix soars as millions opt for cinema at home

NETFLIX added 2.33 million US streaming subscribers in the fourth quarter, sending its shares soaring in after-hours trading.

Netflix currently allows subscribers to access its movie and TV streaming service from two screens, including tablet devices

NETFLIX added 2.33 million US streaming subscribers in the fourth quarter, sending its shares soaring in after-hours trading, and signalled it is considering pricing changes that would be aimed at targeting different market segments.

The company, which provides streaming videos as well as DVDs by mail, charges $US7.99 per month and currently allows users to access the service from two screens simultaneously - enabling sharing among relatives and friends. The company said it hopes to eventually offer new members three options. It has tested other approaches, including a $US6.99 offering that would allow a single stream and a three-stream alternative.

In a letter to shareholders, Netflix said that if it were to make changes to pricing for new members, existing members would get "generous grandfathering of their existing plans and prices". As a result, "there would be no material near-term revenue increase".

"It is not clear that one price fits all," Netflix chief executive Reed Hastings said. "We're trying to figure out some models of good-better-best price tiering."

The company said in the letter it was in "no rush" to implement new member plans.

The last major pricing overhaul by Netflix came in 2011, when it tried to move away from offering a single plan for streaming and DVD-by-mail by introducing two separate plans. The company reversed course after a customer backlash and a major dent in its stock price.

In the US, Netflix added 2.33 million streaming subscribers in the fourth quarter, bringing its number of paying US subscribers to 31.7 million. The company projected adding 2.25 million US streaming subscribers in the first quarter of 2014. Netflix said the operating profit margin for its US business, currently 23.4 per cent, could grow to 30 per cent in 2015.

Shares of Netflix, frequently volatile on its earnings reports, climbed more than 17 per cent in after-hours trading.

In its letter, Netflix said it planned later this year "to embark on a substantial European expansion". The company's international unit posted 1.74 million customer additions in the fourth quarter, taking the total paying international users to 9.72 million. The unit's "contribution loss" - a measure of operating loss - shrank to $US57 million ($64m), from $US74m.

The challenge is to continue adding subscribers, at home and abroad, as it continues to shell out money to license TV shows and movies and for original programming. The company said deals with major studios such as Walt Disney's Marvel Entertainment and Sony Pictures Television helped push its long-term content commitments to $US7.3 billion, from $US6.5bn.

Netflix said it planned in the first quarter to raise $US400m of long-term debt, which would bring its total long-term debt to $US900m.

The company also addressed a federal appeals court's decision this month to strike down "net neutrality" rules, paving the way for broadband providers to degrade the quality of video streams from services such as Netflix unless the streaming providers paid a new toll.

"Were this draconian scenario to unfold with some (internet service provider), we would vigorously protest and encourage our members to demand the open internet they are paying their ISP to deliver," the letter to shareholders said. Netflix said "more regulation would be needed" if ISPs started impeding data flows.

Netflix accounts for about 32 per cent of North American peak internet traffic, the most of any content provider, according to broadband services company Sandvine. Some cable industry executives have said Netflix should pay up, given how much bandwidth its service consumes.

Netflix believes broadband providers will avoid "this consumer-unfriendly path", in part because services such as Netflix drive consumers to subscribe to more expensive broadband packages with faster speeds.

"The most likely scenario, at least in the near term, is that there is no change," Mr Hastings said.

Overall, Netflix reported a fourth-quarter profit of $US48.4m, or US79c a share, up from $US7.9m, or US13c a share, a year earlier. Revenue climbed 24 per cent to $US1.18bn, above analyst estimates.

Membership at the DVD-by-mail business fell sequentially, ending the quarter with 6.8 million paid subscribers.