Netflix subscriber loss worse than expected, shares plunge

By Lee Kaelin on October 25, 2011, 10:30 AM

Video rental service Netflix has posted worse than expected customer losses in Q3 2011 and predicted more cancellations over the recent price hike. Shares in the company plunged 27% after the announcement.

Domestic subscribers dropped to 23.8 million as of September 30, down from 24.6 million just 3 months earlier. The drop was larger than expected, according to statements published on the company's website yesterday. Analysts were predicting a growth of about 300,000 members on last quarter's figures, to around 24.9 million in total.

The 27% drop sent Netflix's stock price down to $87 in extended trading after the company's third quarter results were announced, putting its market-value loss at more than $10 billion since the stock made an all-time closing high of $298.73 on July 13, according to Bloomberg.

The figures suggest that Netflix has been unable to contain the revolt felt over its price increases and the now aborted plan to split streaming and DVD content services. In a letter to shareholders dated yesterday, Reed Hastings, CEO of Netflix said the company had "greatly upset many domestic Netflix customers with our significant DVD-related pricing changes, and to a lesser degree, with the proposed-and-now-cancelled rebranding of our DVD service. In doing so, we've hurt our hard-earned reputation, and stalled our domestic growth."

He further added that the company's "long-term streaming opportunity is as compelling as ever and we are moving forward as quickly as we can to repair our reputation and return to growth."

Netflix now predicts loses for 2012 as it battles to rebuild its damaged reputation. The company also announced that it will launch its streaming service in the UK and Ireland early next year. This follows from a recent licensing deal in the U.S. with Warner Bros. and CBS to stream CW network programs.




User Comments: 21

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NTAPRO NTAPRO said:

Lol that's terrible. Hope they can find some way to get the subscribers back. It might take a while. Better be something good.

Tomorrow_Rains said:

The movie business is extremely critical, i expect netflix to be in decline for the next upcoming years. theyre losing all their good licenses to stream movies by major picture corps. only because they are losing money due to pirating. And netflix has potential to stop most, if not all of the unwanted pirating if these corps will rely on the streaming process netflix has. i mean, comcast just started charging 30 dollars to watch movies in your living room instead of going to the theater.

NTAPRO NTAPRO said:

30 dollars per month?

3DCGMODELER 3DCGMODELER said:

Tomorrow_Rains said:

The movie business is extremely critical, i expect netflix to be in decline for the next upcoming years. theyre losing all their good licenses to stream movies by major picture corps. only because they are losing money due to pirating. And netflix has potential to stop most, if not all of the unwanted pirating if these corps will rely on the streaming process netflix has. i mean, comcast just started charging 30 dollars to watch movies in your living room instead of going to the theater.

I thought and read 60 dollars for 1 movie, that is released the day it shows in the movie theaters..

NTAPRO NTAPRO said:

These outrageous prices...

3DCGMODELER 3DCGMODELER said:

netflix is still buy far the cheapest...

I will hang in there

got rid of comcast TV.. what a waste of money that was... Could i get a refund comcast??

Vrmithrax Vrmithrax, TechSpot Paladin, said:

So, let me see if I get this right... Netflix still has 96.7% of its customer base, it lost less than 4% due to the pricing and split fiasco... And they are going to run at a loss??? Seriously, how tight are the margins they are running, if a short-term 4% decline in revenue is going to put them in the red? I can understand the public relations issues and working on battling back from that, but something in that math just seems weird to me.

stewi0001 stewi0001 said:

3dcgmodeler said:

netflix is still buy far the cheapest...

I will hang in there

got rid of comcast TV.. what a waste of money that was... Could i get a refund comcast??

I agree, comcast is crap crap crap...

as for Netflix, where the heck did these guys go to school for business? Upping the price like that was gonna turn off alot of people. I'm still hanging with them too, but they have got to change their game plan and/or get a new CEO.

TomSEA TomSEA, TechSpot Chancellor, said:

I'm with Vrmithrax - this sounds like much ado about nothing. Wall Street again making mountains out of mole hills. A 4% decline in revenue while still holding the lions share of the customer base is nothing, especially in this economy.

MilwaukeeMike said:

Netflix is a victim of its own success. It moved DVD rental from stores to the mail and bent Blockbuster over a barrel in the process. Then they fired up that crystal ball again and saw that the future was streaming. So they gave us streaming for free? which was a big mistake. They should have been charging all along.

Because now all the owners of the content (movie studios etc) see the future in streaming too. And they want big fat renewal contracts for the right to stream their stuff. Imagine if you got a letter in the mail today that said starting Nov 1st, all clean drinking water would cost $50/gallon. You?d panic. That?s what happened to Netflix?TheyCompletelyFreakedOutAndMadeSomeDumbDescisio? QUIKSTER!

What really must burn them over at Netflix? they saw the future. They were the first ones there. They made us all realize how big streaming will be. And now they?re too small to afford to stay in the game.

LookinAround LookinAround, TechSpot Chancellor, said:

Netflix is a victim of its own success. It moved DVD rental from stores to the mail and bent Blockbuster over a barrel in the process. Then they fired up that crystal ball again and saw that the future was streaming. So they gave us streaming for free? which was a big mistake. They should have been charging all along.

Because now all the owners of the content (movie studios etc) see the future in streaming too. And they want big fat renewal contracts for the right to stream their stuff. Imagine if you got a letter in the mail today that said starting Nov 1st, all clean drinking water would cost $50/gallon. You?d panic. That?s what happened to Netflix?TheyCompletelyFreakedOutAndMadeSomeDumbDescisio? QUIKSTER!

What really must burn them over at Netflix? they saw the future. They were the first ones there. They made us all realize how big streaming will be. And now they?re too small to afford to stay in the game.

+1

Guest said:

One, I understand having to make price changes on products as costs of production goes up (ie movie studio licensing rights). But I haven't seen anything in Netflix news articles concerning increase in costs that would require such a dramatic price change.

Two, I keep reading that Netflix admits it's made big mistakes this year concerning their business modeling. But shouldn't they attempt to rectify the biggest mistake of them all by reversing those price changes. It doesn't seem that anyone is talking about them doing that.

Three, I also keep reading that the mail side of Netflix is going to crash and burn. As a Netflix subscriber, I can attest to the fact that their streaming side kind of sucks. I personally kept the 2-dvd-per-month plan and dumped the steaming part.

Vrmithrax Vrmithrax, TechSpot Paladin, said:

Guest said:

One, I understand having to make price changes on products as costs of production goes up (ie movie studio licensing rights). But I haven't seen anything in Netflix news articles concerning increase in costs that would require such a dramatic price change.

A prime example of this was happening right as they were announcing the transition to separating streaming and dvd programs. Netflix couldn't come up with the much higher pricetag that Starz demanded for renewing their streaming content license, so they lost the contract (and Starz will be pulled from Netflix at the end of the current agreement). If you have watched Netflix news, reports on the massive amount of internet traffic Netflix generates, and the ever-increasing requirements for hosting the exploding streaming library, you can easily see that streaming has become a beast that is chewing up more and more revenue to maintain and expand. It's not rocket science to see that a service that was originally thrown in free as a bonus has exploded and outgrown its cage, and the execs at Netflix had to separate the services to properly allocate budgets according to the actual revenues from each medium.

The problem is how they performed the split, and the lack of detail on why it was happening - it came across to the average Joe as a greed move, as just a rate hike. I sure took it that way when it first occurred, until I sat back and looked at the situation leading up to it.

Cueto_99 said:

Netflix launched operations in Latin America about 2 months ago... I suscribed immediately as I thought and read that it was great... I found out that the movie selection was quite old (I watch the hunt for the red October and monsters inc.) and I couldn't stream movies to my iPhone Netflix app... So I unsuscribed after a month... I don't have to much time left to start watching old movies...

Timonius Timonius said:

And subscriber rates dropping has absolutely nothing to do with privacy concerns? For example, you can NOT delete the viewing history and parental controls are EXTREMELY lacking. Bottom line, it is not a family friendly service and that will affect their business no matter what.

Leeky Leeky said:

So if daddy watches some late night extra-curricular entertainment mummy and said young children will see what good old daddy has been up to then?

Guest said:

@Guest

You haven't seen anything in news articles on why they increased prices, eh? Must not be following too closely:

http://www.dailytech.com/Netflix+Explains+Why+it+Raised+Pric
s/article22176.htm

Their licensing costs have quadrupled. Starz turned down a $300M offer because Netflix wouldn't give them premium add-on status (i.e., an extra fee to watch Starz content). Hollywood is putting the screws to Netflix... hard. As I understand it, that's why they tried splitting off the DVD service, so they could negotiate separate deals for DVD and streaming.

Guest said:

If you are greedy, you pay the price.

SNGX1275 SNGX1275, TS Forces Special, said:

I posted this in a thread in Meeting Spot. Netflix isn't doing bad despite the subscriber loss. Their stock did take a big hit, but with revenue up 49% I haven't seen any real reason for the big drop in stock price (read a few things on yahoo finance while looking at the ticker). Seems to me its a good time to buy Netflix stock.

Its not all doom and gloom at Netflix.

"Despite the decline in subscribers, the company did well financially in the quarter. It reported net income of $62.5 million, or $1.16, a share, compared with $38 million, or 70 cents a share, in the year-earlier quarter. Revenue rose 49 percent to $822 million. Both revenue and income topped analysts' expectations."

Source: NY Times

MilwaukeeMike said:

SNGX1275 said:

Seems to me its a good time to buy Netflix stock.

Their stock is going down because they have no future. DVD's will continue to decrease in popularity, (but I think there will always be a place for some form of physical media).

Apple and Google (or Microsoft) will be the only ones who can afford the content contracts for streaming. Netflix's currently terrible selection will look even worse when Apple signs a few big studio names and has the same selection for streaming as Netflix does with DVDs.

SNGX1275 SNGX1275, TS Forces Special, said:

You could have said that about them at any time though. And now that Quikster is back under their umbrella they still have a future with streaming.

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