One of Netflix CEO Reed Hastings' favorite films is Gloomy Sunday, a dark and melancholic movie about the fragility of life and love, set in 1930s Budapest. But at Netflix headquarters in sunny Los Gatos, California, on Wednesday, the atmosphere and mood was anything but gloomy and depressed.
The streaming company trumped Wall Street fears, with quarterly profit rising 52% to $47.1 million, and revenue increasing by 34% to $595.9 million. Most impressively, Netflix added 3.1 million subscriptions during the quarter, and boasts more than 20 million subscribers—more than the total subscribers of premium channels Starz and Showtime, which have 17.3 million and 18.2 million subscribers, respectively.
Is HBO next on Netflix's radar?
The streaming and DVD-by-mail service estimates it will expand to as many as 22.8 million subscribers in the coming quarter, a possible uptick of 14%. Meanwhile, the subscriber base for HBO, which ended its last quarter with 28.55 million subscribers, fell to its lowest levels in four years, and dropped 1.9% from the last quarter.
To catch up with HBO, Netflix will need to redouble its efforts toward expanding content. The company has spent hundreds of millions of dollars on content deals with Epix, Relativity Media, ABC, Disney, and is reportedly dropping as much as $100,000 per episode of prime-time TV.
With licensed content cutting so much into its bottom line, is it time Netflix begins producing its own content?
That was the question posed to Hastings in an earnings call Wednesday, when an investor wondered whether Netflix had any interest in acquiring an equity interest in a studio or possibly starting its own.
It's not uncommon for premium services to produce their own content—at least on traditional television. Big hits on HBO and Showtime such as True Blood and Californication have help drive up subscriptions.
In the digital world, such expensive original content is far from common—though Hulu has begun testing these waters—and Hastings was clear that Netflix had no interest in making the transition.
"Generally, I'm a believer in circle of competence," he told investors. "When we start taking creative risks—that is, reading a script and guessing who might be good to cast in it—it's not something that, fundamentally as a tech company or a company run by a tech CEO like myself, we're likely to build a distinctive organizational competence in."
So even though Hastings might have an eye for critically acclaimed films like Gloomy Sunday, it's safe to say Netflix won't soon be producing even gloomier shows like Six Feet Under or Dexter.
"We think that we're better off letting other people take creative risks, and get the rewards," he said.