Netflix Loses 810K Subscribers, Precipitating Stock Decline

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While nobody thought Netflix’s release of its Q3 financial results was going to be great, it was worse than predicted. The company announced that it lost a net 810,000 domestic subscribers and will be in the red by 2012, which precipitated stock free fall.

After the announcement, Netflix’s stock dropped by $32 from $120, making Apple’s significant $23.62 stock drop on Thursday look much less substantial. Overall, Netflix’s stock value has dropped 72 percent (about $10.5 billion) in the past three months, leading to questions if Netflix CEO Reed Hastings should resign.

The subscription losses are counterbalanced by the addition of 510,000 international subscribers, bringing the international total to 1.48 million subscribers. While this may not seem like a lot internationally, this really only includes Canada, the Caribbean and Latin America.

Netflix will hit the UK and Ireland in the first quarter of 2012; however, domestic cancellations have undermined Netflix’s international expansion. Netflix will have to pause their expansion after the British Isles because “domestic profits will not be large enough to both cover international investments and pay for global G&A and Technology & Development.”

Netflix’s series of gaffes has shaken the confidence of investors and subscribers alike, causing domestic subscribers to leave. Hastings explained that most of the cancellations occurred in two waves: when they announced the price increase in July and when they took affect in September and October.

While Hastings states that the Qwikster fiasco had only a minor impact, he admits, “in hindsight, it is hard to justify. Having separate brands can in theory make sense; however, after the price increase, Qwikster became the symbol of Netflix not listening.”

Hastings acknowledged the numerous missteps that Netflix made and emphasized that the company needs to rebuild its reputation, instead of restructuring pricing to quell consumer discontent. While most people don’t want to hear this, he is absolutely right. Netflix is still the best option for streaming and if you a real cinophile, their DVD-by-mail program will save you money over Redbox. Of course, Amazon, Hulu, and Blockbuster are becoming bigger threats, but currently Netflix has the lead.

Since the price increase and the break with Starz, Netflix has made a concerted effort to acquire new, quality content; however, as CNET’s Greg Sandoval wrote, “the question is, will this kind of content be enough to bring his former subscribers back and keep Netflix growing? The next couple of quarters should give us our answer.”

About Arthur Pignotti

Before joining CD-Info in 2010, Pignotti worked as a video editor, a multimedia designer, and a multimedia development manager at US Digital Media for 6 years. He has two BAs in journalism and history from Arizona State University and will be receiving an MA in history from Arizona State next year.
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