Ahead of the Bell: Netflix subscriptions a 1Q key

Netflix 1Q subscription numbers will be focus on heels of 'House of Cards' debut

Associated Press

NEW YORK (AP) -- Netflix will get a chance to show whether its spending on original content is paying off when it reports earnings for the first three months of 2013 after the market closes on Monday.

Netflix has been investing heavily to acquire rights to movies and television shows for its Internet streaming service, as the company tries to phase out DVDs and eliminate the costs of buying and mailing those discs. The investments include original programming. Netflix made its biggest foray into such programming in February with the debut of "House of Cards," a political thriller starring Kevin Spacey.

Reports peg the price tag for those rights at about $100 million. The series has received favorable reviews, and investors will be looking for that critical success to translate into success in luring new subscribers and keeping existing ones.

In January, Netflix forecast that it would have 28.5 million to 29.2 million U.S. streaming subscribers as of March 31, the end of the first quarter. Investors will be looking for the actual number to be at the high end of that range. Netflix Inc. ended 2012 with 27.1 million U.S. streaming subscribers.

Netflix has another high-profile series coming in May, the revival of "Arrested Development," which Fox cancelled in 2006 after three seasons. Subscriber gains from "House of Cards" could point to additional increases in the current quarter.

Netflix might also benefit from a long-awaited integration with Facebook, which came to the U.S. in March. With that, Netflix users will be able to automatically see what their Facebook friends have been watching, at least for friends who have enabled that feature. In the process, Netflix hopes to deepen subscriber loyalty.

Licensing deals for content have been expensive, leading some analysts to worry about Netflix's ability to pay for that without raising its prices again. Netflix faced a customer backlash in 2011 when it started charging separately for Internet streaming and DVDs — a switch that raised U.S. rates by as much as 60 percent. Mass customer defections after the 2011 price increase caused Netflix's stock to plummet.

Netflix has insisted it has no current plans to raise the rates for its Internet video service, which now costs $8 per month in the U.S.

As of Dec. 31, Netflix owed $5.6 billion in licensing fees during the next five years, up from $5 billion through Sept. 30.

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