Netflix Pulling in Viewers — and Piling Up Programming Bills

Netflix is pulling in new viewers and award nominations in droves, but the online video service still faces a long-term problem: Its acclaimed programming line-up is costing far more money than what subscribers pay for it.

That hasn't been a big issue so far, thanks to investors' willingness to accept scant profits in exchange for robust subscriber growth.

Netflix delivered on that front again Monday, announcing that it added 5.2 million subscribers in the second quarter covering April to June. That's the largest increase ever during the period, which has always been the company's slowest time of year.

Wall Street rewarded Netflix by driving up its stock by more than 10 percent to $178.30 in extended trading, putting the shares on track to hit a new high in Tuesday's regular trading.

International Costs

The Los Gatos, California, company now has 104 million subscribers worldwide. For the first time in its history, most of those subscribers (slightly more than 52 million) are outside the U.S.

That milestone could further complicate Netflix's cost issues, since the company will need to keep creating more shows that appeal to the unique interests of viewers in countries such as Japan, India and Indonesia.

"It is going to be imperative for them to have more locally produced content," says CFRA Research analyst Tuna Amobi. "They can't afford to pursue a 'one-size-fits-all' strategy."

As part of its efforts to boost its profits, Netflix is becoming more aggressive about dumping shows that aren't drawing enough viewers to justify their costs. In the second quarter, Netflix jettisoned both the high-concept science fiction show "Sense 8" and the musical drama "The Get Down."

In a Monday letter to shareholders, Netflix CEO Reed Hastings made it clear that the company plans to exert more discipline in the future. So far, Netflix has renewed 93 percent of its original series, much...

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