Netflix hurt by fleeing subscribers

The company lost more customers than expected after it announced pricing changes and a plan to split operations.

By Kim Peterson Oct 24, 2011 5:10PM
Updated at 10 a.m. ET Tuesday

The number came in Monday, and it was big: 800,000.

That's how many subscribers Netflix (NFLX) lost in three months. And that's a big reason its shares were plummeting Tuesday even though the company posted a pretty decent quarter.

Post continues below.
Shares were down more than 35% in early trading to $76.21. The stock had closed up 1.5% Monday in anticipation of the company's quarterly earnings report.

The quarter itself wasn't bad. Netflix easily beat estimates on profit and revenue, earning $62.5 million, or $1.16 a share, on sales of $822 million. Analysts had expected a profit of 94 to 96 cents a share and sales of about $812 million.

But no one was looking at the top- and bottom-line numbers Monday afternoon. The big shockers were the forecasts for the current quarter and the higher-than-expected number of cancellations that Netflix says were caused by the "PR storm that engulfed our brand."

PR storm? Maybe. Or perhaps it was the double whammy of separating the streaming and DVD operations and raising the combined price for both services. At any rate, customers were furious and dropped more subscriptions than the company expected.

Netflix had 23.8 million U.S. subscribers at the end of September, down from 24.6 million three months earlier. Analysts had expected about 24 million subscribers -- about what Netflix projected in September.

And that's not the worst of it. Netflix thinks it will continue to bleed subscribers in the current quarter. It said its streaming customers could drop to 20 million (from 21.5 million) and its DVD subscribers could drop to 10.3 million to 11.3 million (from 13.9 million).

That means Netflix will likely miss the target of 24.9 million subscribers that analysts had expected for the current quarter.

So many subscribers canceled that Netflix said its revenue and profit for the current quarter will be lower than it had anticipated. Fourth-quarter profit was forecast at between $19 million to $37 million, or 36 to 70 cents a share, on revenue of as much as $875 million. Analysts had expected a much higher profit of $1.10 a share on revenue of $919 million, Bloomberg reported.

"We greatly upset many domestic Netflix members with our significant DVD-related pricing changes and, to a lesser degree, with the proposed and now cancelled rebranding of our DVD service," the company said in a letter to shareholders. "In doing so, we've hurt our hard-earned reputation and stalled our domestic growth."

Another potential red flag for investors: Netflix says that it has been "aggressively" increasing its spending on content and that spending next year will nearly double what the company has already spent this year. That will put Netflix almost at par with what HBO spends in the U.S., the company said.

Tags: NFLX
Oct 25, 2011 9:54AM

It's the same thing that happened to Bluckbuster in the early 2000's. Bluckbuster did not care about customers, overcharged them with late fees, treated them with no respect, until Netflix came along. netflix is doing the same thing. Think again just did the same mistake.  Sometimes it's not only about the prices but how much you piss off your customers that counts.

Oct 24, 2011 5:30PM

I'm guessing the CEO will still get his big bonus? How he is not fired is beyond reason and makes one think the Board is just a puppet. 

Oct 24, 2011 5:40PM

Last I heard, Webster's Dictionary was adding a new word for next year


Netflix /Net-fliks/ - vb. - to simultaneously and enrage your clients and destroy your company in one fell swoop.


Usage - Bob decided to netflix his startup business because he didn't want to deal with all the paperwork and hassle of filing taxes.

Oct 25, 2011 7:36AM
To be honest, what was dumb on Netflix's part was the fact they split there products. You would have a package for streaming and a package for dvd's. Unfortunately, I am still a netflix member, and will soon to cancel..hopefully this will open there minds. I was paying 10.95 for dvd and streaming. I would recieve 1 dvd at a time and unlimited streaming. Now, there package plan is 7.99 for just unlimited streaming -or- 7.99 for 1 dvd at a time. Put the two together and it's 15.98.  A raise of 6 dollars? If they are going to raise it six dollars, at least give us better streaming options instead of the 1960's movies.
Oct 25, 2011 10:45AM
I'm just thinking Bank of America needs to read this and prepare for their after effects of their $5 charge to use a debit card.......
Oct 24, 2011 5:55PM

The arrogance of Netflix when they announced price increases was despicable. They basically came out and said yeah we expect to lose some subscribers but hey we don't care we are going to do this anyway. I am so glad to finally see consumers bucking up and standing their ground. It almost sickens me to have a salesperson or a company have the attitude that if you don't want it somebody else will. WAY TO GO (former) Netflix subscribers.


............and THAT is how purchasing  power weeds out those who believe that they are in control of the market!


Hopefully a lesson learned by corporate America.

Oct 24, 2011 9:18PM

Some day. Some one will offer what I want. I want a alacart choice.

I have 150 channels of crap I never watch and have to pay extra for the ones I do.

Give me a choice of fifty channels I want and only the ones I want and dont charge me a arm and a leg for it.

I will pay $39.99 a month and be happy and never leave.

Oct 24, 2011 5:58PM

The CEO will get millions of dollars for screwing up a company that was doing all right and turned it into a losing one he probably will fire a few thousands of workers so he can save money and get a bigger bonus.

Oct 25, 2011 8:57AM
800,000 subscribers at at least $10 per, that's over $8million per month lost. That sounds like a sound business decision. Good job netflix. You wouldn't have lost nearly as many if your CEO wasn't such an arrogant douche.
Oct 24, 2011 5:38PM
I was one of the many that cancelled my DVD service.  I kept the streaming but I am thinking of cancelling that as well.  I keep hoping Netflix will see that all customers want is what they had a year ago.  Go back the way it was with one fee for both services and make it affordable.
Oct 24, 2011 8:56PM

As my name indicates - I am one of the FORMER customers of Netflix.  I joined in 2004 and had a pretty good business relationship with the company.  Last December they increased the price I was paying by 20%.  No explanation & when I called and spoke with someone I got the "'s for upgrades & you'll have better service..." storyline.  Less than six months later they want to increase the price another 40% - ON TOP of the previous increase.  In this economy with people out of work, you'd think that price stability would be the order of the day.  NOPE - Netflix cut it's own greedy throat & well, it seems that the old saying is true...What goes around is coming around & boy is it coming around.  They burned their customer base & I wouldn't go back to them even with the offer of a year's free service.  The bond of trust we had is BROKEN and can't be fixed - unlike Netflix - I CAN'T BE HAD AT ANY PRICE. 

Oct 25, 2011 6:23AM
Netflix became overwhelmed with their success.....and then said to themselves, "we got a good thing going on here,  ....let's charge more.
Oct 25, 2011 12:50PM
Hey Netflix - We told ya we'd leave, and you didn't believe us!  Guess that'll teach you.
Oct 24, 2011 5:43PM
This company had a good thing going but CEO greed set in.  $16 per  share to $ 300 per share in  5 years. I would not care if they went broke.
Oct 25, 2011 11:45AM

I wish I was as simple minded as some people who rationalize this as " it's not that much money". True, I won't be checking into the poor house for 15 dollars a month, but unfortunately I learned to read and use a calculator. They have 23.8 million subscibers....hmm lowest subscription is $8........that is over 190 million dollars a month for a service that is all but automated. Other sites are free just from a few corporate sponserships........ That is the only reason $8 dollars was even permissable, for convenience purposes and to eliminate commercials. Now you big corporate Fat Cats try to tell the consumers, " oh poor me, we can barely turn a profit, we need to DOUBLE the price just to stay a float."  I am sorry but if you can't turn a profit and still provide good service with 2 BILLION dollars a year, you sure as hell don't deserve another penny from me because your obviously greedy or simply don't know how to run a buisness.

Oct 24, 2011 5:50PM
That's what happens when morons raise prices. Those idiots have only themselves to blame.
Oct 24, 2011 10:41PM

Congrats America.


We should do it more frequently.

Oct 24, 2011 9:10PM

How does THAT feel, you arrogant bastards?  That is what you GET for insulting your customers again and again while increasing your fees and cutting services. 

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