Netflix vows global coverage in two years; Hastings: ‘Virtually all entertainment video will be Internet video’

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Netflix CEO Reed Hastings said the company would expand to more than 200 countries in the next two years, including China, as international “progress has been so strong” that it can complete its global expansion while staying profitable.

Wall Street reacted strongly to the message, with after hours trading pushing shares – which were up 3.4% during trading Tuesday – up a further 16% pre-open. For the first time since October, Netflix is trading over $400.

Netflix released fourth quarter earnings Tuesday that showed it added 1.9 million subscribers in the United States, beating Wall Street’s expectations, and saw international subscribers climb more than 2.4 million, ahead of its own guidance of 2.15 million new subscribers worldwide. The 5.3 million new customers in Q4 brings Netflix to more than 57.4 million subscribers in the U.S. and in its 50-odd international markets, 39 million in the U.S. alone.

“Internet TV is growing globally and Netflix is leading the charge,” the company said in its letter to shareholders. “It is increasingly clear that virtually all entertainment video will be Internet video in the future. We believe there is big growth ahead in the U.S. market for Netflix, even if we may not get there in a straight line of 6 million annual net adds. We’ll continue to improve our content, our marketing and our service, to eventually achieve ‘must have’ status in most households.”

On the horizon in Q1, Netflix said it is expecting an additional 1.8 million U.S. subscribers and 2.25 million globally.

Nodding to its planned Q1 expansion in Australia and New Zealand, countries it said showed “a thirst for movies and TV shows from around the world,” Netflix said it planned additional expansion this year.

Critically, Netflix said it expected to “create material global profits from 2017 onwards.”

Netflix said the expanding reach on the Internet on multiple devices – especially mobile – has helped drive growth.

Netflix said there were three key benefits to global distribution:

  1. Increasing revenues will allow it to develop and license more content. The company has plans to aggressively grow its original content offerings with up to 20 new titles this year alone.CFO David Wells said the original content “continues to be highly engaged across markets outside the U.S.”
  2. The ability to “source great stories from around the world” and share them in other regions.
  3. The efficiency and influence of being a global distributor of content, as Hastings said, Netfix has figured out “how to start to get global rights for some of the content by moving up the food chain.” Added Ted Sarandon, Netflix’s chief content officer, “instead of having to go country-by-country and piling up those deals and lining up windows, this enables us to make the service, the selection, far more global for viewers around the world.”

As for original content, of which is will debut 320 hours worth this year, Netflix pointed out that creating original content costs it less, relative to viewing metrics, than most of its licensed content does, and said it would “continue to grow the percentage of our content spending dedicated to originals for the next several years.”

The company also said it would turn its attention to expanding with service providers, across various devices and set-top boxes.

The company already is on STBs from Virgin Media in the

United Kingdom, and added British Telecom and TalkTalk on the YouView STB in the U.K., Deutsche Telecom STBs

in Germany, Bouygues, SFR, and Orange STBs in France, Proximus in Belgium, and DISH STBs in the U.S.

With BT and Orange, Netflix members can elect for BT/Orange to bill on our behalf and the appeal of a single bill seems to be attractive.

By the numbers:

Netflix reported adjusted profit of 72 cents per share, beating analyst expectations by 22 cents a share, on $1.48 billion in revenue.

U.S. subscriber numbers were in line with forecast, while international subscribers came in ahead of expectations.

For the Q1 2015, the company forecast total streaming revenue of $1.398 billion, with 4.05 million net member addition.

Stay tuned.

Jim O’Neill is Editor of Videomind and Principal Analyst at Brightcove. You can follow him on Twitter @JimONeillMedia and on LinkedIn