Netflix CEO Reed Hastings: 'We Expect DVD Subscribers to Decline Forever'

Wed Jan 25, 2012 8:20pm EST

Netflix’s future is streaming, the home entertainment giant’s Chief Executive Officer Reed Hastings stressed during a conference call with analysts on Wednesday to discuss the company's fourth quarter results.

“We expect DVD subscribers to decline steadily for every quarter, forever,” Hastings said.

Not that the red envelope company is planning to do anything to reverse the trend.

Also read: Netflix Subscribers Edged Back Up in Q4 -- Has It Turned the Corner?

Hastings said that that company would do nothing to expand DVD-by-mail arm of the company. There are no plans to market the service or grow its subscriber rolls.

“Our primary goal is to keep it stable, very high functioning” and “not to disturb it,” Hastings said.

Netflix ran into a wall of resistance to its plan to spin off its DVD-by-mail business into a separate company called Qwikster. It lost subscribers in the immediate aftermath of the PR debacle.

Also read: Netflix Caves on Warner Bros. 56-Day Rental Delay Demands

But the company said it had gain more than 600,000 subscribers in the fourth quarter. Netflix trounced Wall Street’s expectations for the period, reporting profits of $41 million or 73 cents per share, on a 43 percent revenue gain to $876 million.

Though consumers continue to move away from discs and toward digital, margins on Netflix’s DVD business are much more generous than on the streaming front. Through its DVD-by-mail business, the company racked up $194 million of profit on $370 million in revenue.

The streaming side contributed only $52 million of profits on $476 million in revenue.

But streaming is sexier and is viewed as a growth industry while DVD is widely expected to go the way of the video and the cassette tape. 

Netflix is going back on its promise to offer video games. To soften the blow of its Qwikster announcement, the company announced last fall that it would get into the gaming business.

Not anymore. Even though the company is toying with offering 3D streaming of shows and movies, Hastings said that content would not extend to video games. 

He said he did not think that the company’s recent decision to agree to a longer delay on when it could rent new releases from Warner Bros. will have users defecting en masse. 

Netflix’s DVD customers continue to be primarily interested in older catalogue titles, Hastings pointed out, making a 56 day delay more palatable for the company. He dodged analysts questions about what Netflix may have received in return, but seemed to imply that agreeing to Warner Bros. terms was not an act of charity.

“We don’t do them favors and they don’t do us favors,” Hastings said.  

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