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Summary:

Netflix’s subscriber attrition in the wake of a price hike and separation of its streaming and DVD businesses is even greater than first thought. The company ended the quarter with 23.8 million subscribers in the third quarter, which is down 810,000 from the previous quarter.

netflix envelope

Netflix’s subscriber attrition in the wake of a price hike and separation of its streaming and DVD businesses is even greater than first thought. The company ended the quarter with 23.8 million subscribers in the third quarter, which is down 810,000 from the previous quarter.

The final numbers were lower than the 24 million subscribers that Netflix had forecast it would end up with halfway through September. Notably, the company was lower on both its streaming and DVD sides of the business. Netflix ended the quarter with 21.45 million streaming customers, compared to the 21.8 million it expected. It also had 13.93 million DVD subscribers, compared to the 14.2 million forecast.

The missed subscriber guidance is just the latest bad news for Netflix, which has disappointed analysts and investors ever since it first announced the price change in July. That change separated its DVD and streaming-only plans, which had previously cost $9.99 together, to $7.99 each — an increase of 60 percent if consumers decided to stick with each.

That angered a lot of customers at first, but the bad news didn’t stop there. Netflix later announced plans to spin out and rebrand the DVD service Qwikster, saying that it would have a separate billing and ratings system, and reside at a different website than the Netflix streaming business. That plan, too, was met with disapproval and quickly shelved.

In explaining what happened in its management letter to subscribers, CEO Reed Hastings and CFO David Wells wrote that the “primary issue is many of our long-term members felt shocked by the pricing changes, and more of them expressed that by canceling than we expected.” They wrote that as a result, Netflix revenue and profits in the fourth quarter will be lower than expected, but that the company will remain profitable on a global basis.

Management said only about 7 percent of new subscribers choose to sign up for a combined streaming and DVD plan, which makes it unlikely that the company would offer a reduced rate for a combined offering. As of today, fewer than half of all streaming subscribers also pay for the DVD-by-mail plan, and it expects that rate to fall as time goes on.

Despite the hit that Netflix felt due to subscribers leaving and slower signups, subscriber acquisition costs (SAC) remained low, at just $15 — which was comparable to the second quarter. It’s also still 24 percent lower than the year-ago quarter. After the recent backslide, Netflix expects that it will begin regaining subscribers in the fourth quarter, but those additions will come mostly in streaming, as DVD customers have been steadily canceling since the price change.

Since July Netflix’s stock has dropped from a high of more than $300 to around $115 earlier today. In after-hours trading, the stock is down an additional 25 percent, to below $90.

  1. It’s not the price hike. They lost subscribers because their new UI is terrible and makes it impossible to find good content. There is a lot of good content, but I find myself scouring to find it.

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  2. I dropped streaming and increased DVDs from 2 to 4. The only brpadband I have access to is Verizon 3G.

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  3. Steven Howard Monday, October 24, 2011

    I suspect they actually lost well over 1 million customers. The figures here are net total customers. So assuming they won some NEW customers during the quarter, the number of actual lost customers is even greater than 810,000.

    It’s not a surprising result, considering the series of serious marketing mistakes management made during the quarter.

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  4. I dropped Netflix altogether… use Vudu for renting just released movies in streaming format and Amazon’s Prime offering for everything else.

    BTW, Steven Howard is making a very good point about net vs. total customer losses.

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  5. Cory Williamson Monday, October 24, 2011

    It’s a huge loss, but I’m still thinking it’s temporary. There really isn’t a big direct competitor with the same brand recognition. Most of their user-base probably doesn’t know what Qwikster even was.

    We shot a video about what REALLY happened between Netflix and Qwikster! We’re also giving away the costumes if anyone wants a sweet Halloween costume! Check it out: http://bit.ly/qL5w6G

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  6. Lindsworth Horatio Deer Monday, October 24, 2011

    Netflix has no worries!! They are coming to Latin America, which includes the Caribbean (Jamaica where I reside)!!

    http://mythoughtsontechnologyandjamaica.blogspot.com/2011/07/netflix-coming-to-latin-america.html

    Digicel is ready to host Netflix Servers, as they have cloud Storage facilities at reasonable prices!!!

    http://www.geezam.com/digicels-cloud-backup-services/
    http://mythoughtsontechnologyandjamaica.blogspot.com/2011/05/digicel-cloud-backup-service-and-future.html

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  7. OctoramaPoll: Netflix lost 800,000 U.S. subscribers in one quarter, and Netflix shares plunged 27% in after-hours trading. What should we learn from this?
    Vote or see What’s on people’s mind http://octorama.com/desktop/display-1752

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  8. if a company doesn’t have any REAL argument as to why they’re changing their subscription plans, and ruining a good thing when business is going so well for them – because they want even more money – than they deserve the loss. good.

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    1. Well when sheeple like you dont stop to think about why they would have to increase pricing and then put 2 and 2 together to realize the studios are going to begin gouging them for content, then you might see the bigger picture.

      Not only are licensing costs going up, but if Netflix started pointing the finger at these greedy schmucks, they not only would get reamed but because hollywood is so nasty and hateful, they wouldnt sell it to them, but to any competitors instead!

      So as for any REAL argument, you lack the intelligence to comprehend, go ahead and go out to the marketplace and find your content for the same price Netlix charges you!

      Oh, you cant can you. Well, enjoy your $100= cable bill!

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  9. A good example of what not to do when repositioning your product. Thanks for the valuable lesson Netflix

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  10. The way they went about things was a big FU to their long-term customers like myself. And my response was in kind, including complete cancellation. I don’t know that there is anything they could do to get me back. Amazon video for streaming and Blockbuster Express and/or Redbox work just fine for me.

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  11. They can add one more lost subscriber once I finish up season four of Mad Men.

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  12. MIXVID Entertainment Tuesday, October 25, 2011

    That’s why there’s “MIXVID” free movies free games free music no hassle.

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