Hasta La Gadget!

Netflix announced its Q4 2010 earnings today and surprised us with its huge rise in sales. In the letter it sent out to its shareholders (PDF), the company said it had surpassed 20 million total subscribers in the closing hours of the final day of 2010. The big story is that Netflix added 7.7 million of those subscribers during 2010.

Netflix’s original prediction for subscriber growth in 2010 was 3.6 million. The letter says much of this growth stems from Netflix’s streaming-only plan that it added in November. The service is only $7.99 a month, and it accounts for one-third of the 7.7 million subscribers. About 3.1 million people subscribed in the fourth quarter alone, which would explain the rise in the streaming-only plans. Netflix says that very few existing subscribers are downgrading to the pure streaming plan.

Streaming is much bigger for Netflix than physical DVDs, in hours of entertainment delivered, and it’s growing much faster than DVD rental. DVD shipment and content costs are still very material, and Netflix says it expects year-over-year shipments to decline in the coming quarters. But for those who take advantage of the DVDs rather than streaming, there’s no need to worry. Netflix says, “even though we expect DVD shipments to decline this year, we want to be clear that we intend to continue to offer great DVD-by-mail service for many years to come.”

Interestingly enough, Netflix spent about 10 percent less in marketing than it did a year ago, yet its subscription numbers grew 63 percent over the year.