Eyes on Netflix subscriptions in 1Q report

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By ANICK JESDANUN, Associated Press

NEW YORK (AP) — Netflix Inc.'s earnings report for the first three months of 2013 will give the video subscription company a chance to show whether its large spending on original content is paying off.

WHAT TO WATCH FOR: 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.

The first-quarter earnings report comes after the market closes Monday.

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.

Michael Pachter, an analyst with Wedbush, said both "House of Cards" and the Facebook integration should help Netflix's subscriber numbers in the first quarter. Yet he remained worry about the company's prospects in the second half of 2013 after the release of Netflix's two highest-profile original series.

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.

WHY IT MATTERS: Despite its ups and downs, Netflix remains a home-entertainment trendsetter that has made it easier for people to forego cable service to save money. The company is also still trying to rebound from the steep downturn from its stock prices. After peaking at nearly $305 in July 2011, Netflix stock fell to as low as $52.81 last summer. The shares recently have been hovering around $170.

WHAT'S EXPECTED: Analysts polled by FactSet expect Netflix to earn 17 cents per share on revenue of $1 billion.

LAST YEAR'S QUARTER: Netflix lost $4.6 million, or 8 cents per share, on revenue of $870 million in the first three months of 2012.

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