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Netflix Lowers Sub Guidance, Stock Plummets

15 Sep, 2011 By: Erik Gruenwedel

Online disc rental pioneer says it will lose an additional 800,000 disc-only and 200,000 streaming-only subs in the third quarter

Netflix Sept. 15 reported a revised third-quarter guidance (ending Sept. 30), saying it would lose 1 million more subscribers than previously thought.
The Los Gatos, Calif.-based service now says it will have 24 million total subscribers instead of the previously reported 25 million.

Netflix Sept. 1 enacted new pricing, which included a 60% price increase for its popular combined streaming/disc rental plan.

Netflix had expected a gain of 400,000 subs in the third quarter. It has only once before posted a quarterly loss in subs — back in 2007 when it battled Blockbuster’s upstart Total Access online rental, in-store exchange program.

Speaking Sept. 15 at the Paley Center International Council in Los Angeles, Ted Sarandos, chief content officer with Netflix, did not directly address the revised subscriber projections. He did say that precisely predicting the behavior millions of people on radical change remained a work in progress.

“We’ll get better at it over time,” Sarandos said.

While the increased loss of disc-only subs wasn’t unexpected — Netflix has, until recently, all but turned its back on disc rentals — the loss of 200,000 subs paying $7.99 per month for unlimited streaming comes as the service launches streaming service in Latin America, the Caribbean and Mexico.

“While Netflix thought they had weathered the worst of the storm when they reported earnings, they clearly underestimated the number of people that would call back in late August/early September to cancel/alter their subscription plan as the price increase was going into effect,” wrote BTIG Research analyst Richard Greenfield in a Sept. 15 blog post.

Greenfield said the subscriber decline opens the door for the entry of a third-party competitor and underscores why Starz walked away from re-negotiations of its content license agreement.

“We wonder whether the ultimate conclusion from the chain of events is that Netflix passed on Starz, simply because they could not afford it based on subscriber reaction to the plan/price changes,” Greenfield wrote.

Wall Street, typically a friend of Netflix, responded harshly sending shares down more than 18% ($38.96 per share) to $170.05 per share in midday trading.


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