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 Netflix Adds a New Woe: Red Ink

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ПорукаНаслов: Netflix Adds a New Woe: Red Ink   Netflix Adds a New Woe: Red Ink Icon_minitimeMon Oct 24, 2011 9:05 pm

Netflix Inc., which once could do little wrong in the eyes of customers and investors, has lost the goodwill of both.

The Internet video innovator on Monday said it lost more customers than it expected in the third quarter following what it admitted was a botched effort to divorce rentals of DVDs from streaming video services, and predicted that subscriptions for DVD delivery will decline sharply in the current period.

Netflix also projected that it will begin losing money for a few quarters discount jerseys starting in the first period, because of costs associated with an expansion in the United Kingdom and Ireland also announced Monday.

Investors reacted harshly. Netflix shares, which had already fallen 61% from their all-time high in mid-July, fell 26% more in after-hours trading Monday, following the quarterly report. The company's market value has sunk to about $4.6 billion from more than $16 billion in the space of three months.

Netflix said it lost roughly 800,000 subscribers in the third quarter, which it ended with 23.8 million U.S. members, after years of a steadily increasing subscriber base. Netflix predicted that pricing changes will cause some customers who rent DVDs to drop that service, or in somenfl jerseys cheap cases drop streaming services they aren't using.

"We made a couple of big mistakes this year," said Reed Hastings, Netflix's chief executive, in an interview. "It's up to us to own up to those mistakes and to move forward."

The company did see quarterly earnings jump 63% to $62.5 million, while revenue rose 49% to $821.8 million. Netflix forecast a fourth-quarter profit of $19 million to $37 million and earnings per share of 36 cents to 70 cents, below Wall Street's expectations.

Netflix predicts that the number of subscribers to the online-videojerseys wholesale service will remain flat in November and rise in December. Mr. Hastings added that the U.K. and Ireland expansion is a long-term investment that will pay off as high-speed Internet access becomes more widespread there. But the plans to sacrifice short-term profits concerned some people on Wall Street.

"Why not step back and be profitable throughout?" asked Michael Pachter, a Wedbush Securities analyst.

Netflix, which Mr. Hastings co-founded in 1997, became a hit with steelers jerseys cheap consumers by renting DVDs through its website that are delivered and returned by mail. The company's popularity swelled further in 2007, when it starting streaming movies and TV shows to U.S. subscribers on its website. It has since expanded that feature to Canada, Latin America and the Caribbean.

But this summer it infuriated subscribers with two moves. In July, Netflix boosted the price of a combined online-video and DVD-rental package by 60%, to $16 a month from $10. Then in September, Mr. Hastings said the company would spin off its DVD-by-mail service into a separate business named Qwikster, while keeping Netflix as an online video-only company.

The Qwikster plan—which would involve two different bills and websitescheap jerseys—sparked so much animosity it was scrapped within three weeks, drawing comparisons to Coca-Cola Co.'s about-face to drop "New Coke" in the 1980s. "That's a fairly positive reference given how well that worked out with Coke," Mr. Hastings joked Monday. "That might even be generous."

Mr. Hastings acknowledges the company moved too fast with the Qwikster idea. But he attributes the subscriber losses mainly to the price increase, which he said was not adequately explained as necessary to keep up with the rising costs of mailing DVDs and of acquiring content for the online-video service.

There will be no promotions to bring back spurned subscribers, he said. "The focus is on bringing back our reputation and brand strength, but it won't happen through grand gestures," Mr. Hastings told analysts Monday.

Netflix, which faces increasing competition from companies such as Amazon.com Inc., has also been spending heavily to acquire new content for online viewing. In a deal announced earlier this month, for example, it agreed to pay CBS Corp. and Time Warner Inc. $1 billion for shows from the CW network, people familiar with the deal have said. The company will lose a chunk of available movies and TV shows when its deal with Liberty Media Corp.'s Starz cable channel expires next year.
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