Tuesday, July 26, 2011

Netflix, Apple show the way

Financial reports for the second quarter of 2011 are coming out, and I wanted to take note of two particular media firms: Apple, and Netflix.  Not only were the reports quite positive, but a large part of the gains are resulting from shifts from their initial product focus that reflect shifting trends in media and journalism.
Netflix reported that it's profits in the last quarter were more than 50% higher than the previous quarter, earning $68.2 million in profits from $789 million in revenue.  They also increased the number of subscribers to 25.6 million, securing its position as the video service provider with the largest number of subscribers.  Netflix began as a traditional DVD rental business (albeit distributing by mail rather than local stores), but reports that it's streaming business is outgrowing the DVD operation.  Netflix recently announced increases in subscription rates for the DVD side, but not its streaming operations; and while it expects some losses among DVD subscribers, they expect continued growth on the streaming side will more than cover any loss.
Apple's numbers were also up, significantly exceeding Wall Street's projected numbers.  Apple reported a net profit of $7.31 billion in the last quarter on revenues of $28.57 billion, numbers about double of last year's.  But looking below the aggregates, the gains represent the huge gains in sales of mobile devices (20 million iPhones and 9.25 million iPads in the last three months), and lower-than-expected sales of Macs (3.9 million).  Apple also reported continued growth in content sales.  In a shift from its early focus on computers, the new numbers reflect a growing dominance from the mobile side.  More than half of Apple's revenues derive from iPhones and related products and services, and profits and revenues from iPads were higher than what was earned from Apple's computer lines.
One other potential implication being discussed is Apple's reported interest in purchasing Hulu, the video streaming service begun by a combination of TV networks and movie companies.  Adding Hulu to the video content already available through the iTunes store, and a closer integration of Hulu with its mobile operating systems could make iTunes competitive with Netflix and Amazon as video distributors, particularly to mobile.
All these suggest the shift to mobile and content services as dominant trend.  And it's not just Apple; worldwide, sales of net-accessible mobile devices and tablets outstrip traditional desktop computers, and digital content sales is making significant inroads against other media distribution forms.

Sources: "Netflix Screens Good Results," MediaDailyNews
"Apple's Q3 Earnings Report: Digging Through the Details", The Mac Observer

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