Netflix Subscriber Drop Not As Bad As Expected, But Trouble Foreseen


When Netflix announced plans for a price hike over the summer, it said it expected to lose as many as one million subscribers to its DVD subscription service as a result. But this week, the firm announced that 810,000 subscribers had left. Furthermore, the firm posted better-than-expected financial results, earning $62 million on a record $822 million in revenues.

Netflix shares plunged 35 percent in after-market trading Monday when the results were posted. And many are now predicting tough times ahead for the high-flying media company.

Netflix, which reports having as many as 25 million subscribers overall, provides two basic services: A DVD subscription service and a video streaming service. The company says over 21 million customers subscribe to its streaming service, while 14 million subscribe to the DVD service. Many customers, of course, subscribe to both.

But after announcing plans to separate the services into two separate companies, and effectively raising prices on both, customers reacted with anger, and Netflix previously predicted it could shed as many as one million subscribers overall in the quarter as it made this transition.

The company further angered subscribers when it announced it would rename the DVD business as Qwikster, a brand that was quickly denounced and belittled by fans. Netflix then recanted on this decision and announced it would retain the Netflix brand for both businesses, but it refused to change from the new pricing model.

 "In hindsight it's hard to justify [the Qwikster decision]," Netflix CEO Reed Hastings said during a conference call with financial analysts Monday night. "Qwikster became the symbol of Netflix not listening. We quickly changed course on that, and we're going to stick with DVDs as part of the Netflix brand."

The problem for Netflix isn't so much the quarter that it just posted but rather the guidance the company has provided for the future. Netflix said it would dramatically increase its costs in order to shore up the services through content acquisitions and by expanding into new markets, such as Latin America. As a result, its next quarter guidance is lower than was previously expected.

Further angering analysts, Netflix is sticking to its business plan and offering no way to win back lost subscribers. This suggests that the company's executive staff doesn't understand the impact that dramatically higher prices have had on previously-loyal subscribers and that further subscriber loss could occur.

Netflix maintains that subscriber losses will peak this month, improve in November, and then be "strongly positive" again in December. But the company will lose customers overall this coming quarter too, and end the year with roughly the same number of streaming customers and about 11 million DVD subscribers in the US, it said.

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