Who needs prestige? Netflix ends year on a 'Bright' note

On the eve of Oscar nominations, Netflix was reveling in its popcorn fare. 

Netflix cheered its Hollywood-blockbuster flick "Bright," a fantasy/action film starring Will Smith, as the company on Tuesday reported its best quarter ever for booking new members. "Bright" might have been panned by critics but it got high marks from Netflix execs for boosting membership.

The news, hitting before Oscar nominees are unveiled Tuesday morning, underscored how Netflix's productions have widened toward broad appeal after its early strategy focused on critical gems. Faced with the challenge of luring in global members and the remaining US population that didn't already subscribe, Netflix broadened its originals to touch on more languages and genres. 

And even though Emmy-catnip succeeded in generating buzz for Netflix TV shows, the company has mostly struck out when it comes to getting attention for its films by winning glitzy Hollywood awards. 

"Bright," a cop action/thriller movie with a fantasy twist, was Netflix's megabudget bet on replicating a blockbuster-style flick. Landing on Dec. 22, it capped Netflix's year by debuting in the streaming service's style: letting viewers see it immediately in the comfort of their living rooms, rather than having to trudge to a theater. 

The movie, which reportedly had a $90 million production budget, was panned by critics but appeared to appeal to fans -- Rotten Tomatoes lists it with 27 percent score from critics but an 86 percent score from users. The film supposedly drew an audience of 11 million in its first three days, according to Nielsen estimates. 

"In its first month, Bright has become one of our most viewed original titles ever," said a letter to shareholders Monday from chief executive Reed Hastings and chief financial officer David Wells. During a video interview with an analyst later Monday, Hastings described "Bright" as "an epic moment, an incredible story."

Ahead of the results, BTIG analyst Rich Greenfield questioned whether critics even matter for Netflix's movies strategy. "Critical reviews of 'Bright' were horrible as showcased on Rotten Tomatoes, yet audience reviews were quite positive and Netflix has already greenlit a sequel," he wrote in a note earlier Monday. "How can you explain the disconnect?"

Chief content officer Ted Sarandos said critics "are an important part of the artistic process, but they're pretty disconnected from the commercial prospects of a film."

Glued to Netflix

The strategy has also meant subscribers individually are watching more, too. In reporting its fourth-quarter results Monday, the company said that the average number of hours streamed per membership rose by 9 percent last year compared with a year earlier.

In a veiled insult to two of its major competitors, Hastings said he's about as threatened by a planned Disney streaming service as Netflix has been threatened so far by Hulu. (Which is to say: not very threatened at all.)

Last month, Disney agreed to buy most of 21st Century Fox, a bombshell acquisition designed to defend against tech/media giants like Netflix, Amazon and Apple. The deal also would double Disney's stake in Netflix's rival Hulu to 60 percent.

The deal should play into the two streaming video services Disney has planned. Because it's launching its own Netflix rivals, Disney has said it will let its major licensing deal with Netflix lapse. At the end of this year, Disney will stop sending its new movies to Netflix after they leave theaters, funneling them instead of its own streaming service it aims to launch in 2019. 

Monday, Hastings was unperturbed about the competitive change. 

"Our thing is working, and what we have to do is not get distracted. We have to do content at a scale that very few people have ever done before," he said. "If we do that, the rewards should be very solid for us."

In its shareholder letter, Netflix added Apple to its section about competition. The gadget giant is reportedly pouring $1 billion into creating its own Hollywood-like content. 

The company was forced to put a dollar value on its hit from allegations of Kevin Spacey's sexual impropriety. Netflix booked a $39 million writedown -- a financial term for when a company realizes the value of an asset is less than it originally thought -- related to "unreleased content." Last year, Netflix abandoned a plan to release the film "Gore" about Gore Vidal by Spacey's company, and it jettisoned material it already filmed for the final season of "House of Cards," the series starring Spacey that put Netflix original shows on the map. 

On the call, CFO David Wells said the writedown was related to the "societal reset around sexual harrassment."

Investors celebrated Netflix's better-than-predicted subscriber numbers, the metric most closely watched by Wall Street. Shares jumped 7.5 percent to $244.75 in after-hours trading.

International subscribers jumped by 6.36 million members to 62.83 million, beating the 5.05 million additions the company predicted. In the US, Netflix added 1.98 million streaming customers for a total of 54.75 million, besting its 1.25 million guidance.

Looking ahead, Netflix expects to add 1.45 million streaming members in the US and 4.9 million internationally in the current quarter.

Overall, Netflix reported a profit of $185.5 million, or 41 cents a share, compared with $66.7 million, or 15 cents a share, a year earlier. Revenue rose 33 percent to $3.29 billion.

Analysts on average expected per-share profit of 41 cents -- matching Netflix's guidance -- and $3.28 billion revenue.

Looking ahead to the current quarter, Netflix predicted 63 cents per share in earnings. On average, Wall Street analysts who track Netflix expect 56 cents.

First published Jan. 22, 1:35 p.m. PT.

Update, 5:19 p.m. PT: Adds details from analyst interview with executives.

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