LOS ANGELES (TheStreet) -- Netflix (NFLX) - Get Netflix, Inc. Report is the king of streaming, and there doesn't seem to be anything that new online video offerings from Time Warner's (TWX) HBO, CBS (CBS) - Get CBS Corporation Class B Report, Viacom's (VIAB) - Get Viacom Inc. Class B Report Nickelodeon or DISH Network's (DISH) - Get DISH Network Corporation Class A Report Sling TV can do about it.
With the number of subscribers to the streaming service surpassing 62 million, Netflix's chief content officer Ted Sarandos all but scoffed at the notion that the company is spending too much money on original content. Shows such as the political thriller House of Cards and the dark comedy Orange Is the New Black are a major reason people all over the world subscribe to Netflix and retain the service, he said in an investor conference call Wednesday.
"What we're seeing is the dollars invested in our original programming are more efficient in that for every dollar spent, we get more bang for the buck in terms of hours viewed," Sarandos said.
The number of U.S. subscribers grew by 2.3 million in the first quarter, while the number of international subscribers jumped 2.6 million. The subscriber growth exceeded analyst estimates. Revenue soared 24% to $1.6 billion. Shares of Los Gatos, Calif.-based Netflix were up 13% at $537.03 Thursday morning.
The cost of original content and the strong dollar weighed on profits as first-quarter net income slipped to $24 million, or 38 cents a share, from $53.1 million, or 86 cents. Netflix executives said foreign-exchange factors were a price to pay for its aggressive efforts to expand outside the U.S.
The company has touted return on investment with original content over licensed content in the past. The latest subscriber numbers clearly pleased Wall Street and suggested Netflix still owns shows that will entice consumers to pay for subscriptions.
Because of promotional deals, Netflix carried about 3 million subscribers during the quarter who received the service for free. Some 38% of U.S. households pay for Netflix, dwarfing its direct competition, according to Nielsen data.
"Hours viewed leads to higher retention, more word of mouth and more brand halo," Sarandos added.
The company's commitments to programming stand at $9.8 billion, a 30% increase from last year, chief financial officer David Wells said. In February, the company announced plans to raise $1.5 billion to finance original content.
Those billions, however, need to come with the hits Netflix has reliably produced since House of Cards debuted in 2013. Otherwise the company runs the risk of losing its subscriber edge over the likes of HBO Now, Amazon's (AMZN) - Get Amazon.com, Inc. Report Amazon Prime and Hulu Plus, a joint venture between Comcast (CMCSA) - Get Comcast Corporation Class A Report, 21st Century Fox (FOXA) - Get Fox Corporation Class A Report and Walt Disney (DIS) - Get Walt Disney Company Report.
Netflix has already shown its willingness to spend, outbidding Hollywood studios for indie drama Beasts of No Nation, which it plans to release simultaneously in theaters and on its own service later this year. The company paid a reported $12 million for the movie, which box office analysts believe would have trouble recouping costs if it were afforded a traditional wide theatrical release.
Although Netflix does not release viewership figures, its historical adventure drama Marco Polo -- the company's attempt to match HBO's ratings juggernaut Game of Thrones -- is viewed as an expensive dud, with costs estimated at about $10 million per episode.
The third season of House of Cards that was released in February was met with less enthusiasm by audiences and critics than earlier seasons but still helped Netflix beat subscriber estimates in the first quarter.
The company's pipeline of original content includes deals with comedian Adam Sandler and director-producer Judd Apatow, as well as a global deal with Disney and Marvel studios that give Netflix access to children's programming and superheroes.
"It's probably one of the few output deals that I'm enthusiastic about because the Disney content is global, it is tentpole, it's family, it's a lot of co-viewing among families for the content that gets watched," Sarandos said. "It's a great brand to bring comfort to families that subscribe to Netflix."
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.