Two things to watch for when Netflix reports earnings

Image representing Netflix as depicted in Crun...

Image via CrunchBase

Two big things to watch for when Netflix reports fourth-quarter earnings Wednesday afternoon:

1) How many subscribers the company added in 2012, and its latest predictions.
In October, when Netflix reported third-quarter results, it said it expected to end 2012 with 26.4 million to 27.1 million streaming subscribers, representing a gain of between 4.7 million and 5.4 million customers for the year. The company had previously predicted that it would pick up 7 million subscribers during the 12-month period.

Netflix stock immediately fell 15% in after-hours trading that evening, and we could see a similar drop this time unless the company outperforms its projection.

2) CEO Reed Hastings‘ latest comments on competition, most notably from Amazon and HBO.
Three months ago, Hastings told analysts on the Netflix earnings call that its slowdown in streaming subscribers had little to do with Amazon.com, which bundles a streaming service with its Amazon Prime offering.

Founder and CEO of Netflix, Reed Hastings, cla...

Founder and CEO of Netflix, Reed Hastings. (Photo credit: Wikipedia)

Amazon is often seen as the company most likely to surpass Netflix as the leader in content streaming because it generates so much cash from retail sales (to the tune of $13 billion in third-quarter revenue), and could easily outbid Netflix for the rights to movies and TV shows if it so desired. People who are skeptical of Netflix say the same thing about Apple, Comcast, Verizon and other companies much larger than Netflix with an interest in online video.

Hastings can now point to last month’s news that Netflix will become, in 2016, Walt Disney Co.’s exclusive U.S. subscription TV service for first-run live-action and animated feature films. It was the kind of deal that Disney and other studios had traditionally made with premium cable entities such as Starz, who has those rights now.

While this is a big victory for Netflix, various reports said the company will pay as much as $300 million per year to Disney under that new agreement, and some observers are worried that the company will have to take on too much debt to back that kind of spending commitment.

Netflix bears also worry about other desirable movie deals that will elude the company’s grasp. Earlier this month HBO renewed its agreement with Universal in a pact starting in 2016 that will keep that studio’s films on its channels through 2022. The reported price tag there is $200 million per year.

Analysts may ask Hastings what Netflix intends to do about the next big movie studio agreement set to expire in 2016 — Sony’s deal with Starz.

— David B. Wilkerson