4 ways Netflix can maintain the momentum

October 24, 2013: 2:24 PM ET

Here's what the company should do.

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Netflix says the prison-comedy series "Orange is the New Black" is on track to become its most-watched original series to date.

FORTUNE -- Netflix (NFLX) is on a roll.

Earlier this week, the video streaming service provider reported net income had more than quadrupled to $31.8 million last quarter. Membership climbed to 40 million worldwide, with strong growth overseas. And with three Emmy wins this September, it seems the company is stronger now more than ever -- impressive given the company's public struggles two years ago with price hikes and a canceled DVD-by-mail spin-off.

Here's how CEO Reed Hastings can keep the good times going.

More original content

Netflix made history recently when it snagged three Emmys for the political drama House of Cards, including one for Best Director. It was the first such award given to a non-TV network. Indeed, the show is partly responsible for adding 3 million new members during first quarter 2013. And though the company won't disclose numbers, the prison-based dramedy Orange is the New Black is on track to become Netflix's most-watched original series by end of the year. With big bets like these paying off, it's obviously in Netflix's best interest to develop more choice, exclusive shows viewers can't find elsewhere. Doing so will continue to differentiate the company from rival services like Amazon's (AMZN) Prime Instant Video and Hulu.

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Cater to overseas markets

Simply put, the more Netflix caters to different international markets, the better. While a large portion of its catalog undoubtedly has some international appeal, and original series like Orange is the New Black will likely translate well to other countries, the company needs to build out an international catalog that appeals on a market-by-market case. After all, what's popular in India may not be the case in Italy. In the long term, Michael McGuire, Gartner Vice President of Research, suggests Netflix consider developing original content for its most popular international markets like, say, Brazil. Costly? Sure. But a bet that could mean a huge payoff in additional subscription sign-ups in the same way House of Cards did in the U.S.

Keep those deals coming

Over the last year, Netflix has been no slouch when it comes to expanding its video streaming catalog, inking deals with Disney (DIS) and Warner Bros.for undisclosed amounts. The Disney deals will provide U.S. subscribers with new and catalog movies; the Warner Bros. deals means users will have access to content including full seasons of serialized dramas and animated content. This June, the company also announced a multi-year deal with DreamWorks Animation to develop original programming for Netflix subscribers, an agreement that covers 300 hours of new programming. (An animated original series called Turbo F.A.S.T. premieres later this year.) "The new content should, in part, help to offset the gap in Netflix's children's content schedule created when it let the Viacom deal expire earlier this year," writes Wedbush Securities analyst Michael Pachter. We say, keep those deals coming.

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A price hike?!

Hold your horses. We're not suggesting plans reminiscent of Netflix's botched efforts in July 2011 -- $7.99 for one-DVD-at-a time, $7.99 just for unlimited streaming, and no combined option -- but Pachter argues the company's current pricing model is great for growth, but bad for profits in the long-term. "In order to be sustainably profitable, we believe that Netflix must raise price, and therein lies the dilemma: Netflix can be a high-growth, low-profit company, or it can be a low-growth, high-profit company," writes Pachter, who believes a compromise between the two doesn't exist. That may be the case, but Netflix could learn a lesson from long-term focused Amazon and consider holding off on raising prices for as long as possible, building out its original content catalog and amassing tens of millions more loyal users for years to come. And when it becomes such a rich, compelling experience, perhaps -- just perhaps -- many of those same cutters will feel they have no choice but to pony up.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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