Peter Kafka

Recent Posts by Peter Kafka

Netflix Cuts Its Guidance by One Million Subscribers

Netflix, which instituted a price hike earlier this fall, says the higher costs are turning off more customers than it expected. The video rental company has cut its third-quarter U.S. subscriber projections from 25 million subscribers to 24 million, a four percent cut. The majority of the shrinkage, Netflix says, will come from its DVD-only customers.

Netflix says the subscriber cut won’t affect its financial guidance. In a brief note, it defends, again, its reasoning:

The strategy behind the split of our services is four-fold:
(1) to create a dedicated DVD rental division that takes pride in great execution and maximizes the opportunity for disc rental over the coming decade;
(2) to enable us to improve our global streaming service even more rapidly, because it is not meshed with a domestic DVD business;
(3) to enable us, with the growth in revenue, to license more streaming content and thereby improve our streaming service even more;
(4) to remain very price aggressive, with $7.99 per month for unlimited streaming of a huge library of TV shows and movies, and $7.99 per month for unlimited DVD rentals, 1 out at-a-time.

We know our decision to split our services has upset many of our subscribers, which we don’t take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come.

In July, after Netflix announced the price hike (for customers who want both DVD and streaming Web video services), it said that it expected a bump in Q3 revenues as customers adjusted to the pricing, but that its growth trajectory would resume by the end of the year.

But while the price hike kicked off a torrent of complaints on the Web, CEO Reed Hastings said the company had expected to hear more carping: “We knew what we were getting into, we tried to be as straightforward as we could, and that has worked out very well for us.”

Netflix shares, which had kissed $300 earlier this summer, were down to $208 by yesterday’s close. Now they’re down another another 16 percent, to $174, in premarket trading.

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