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.