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Netflix cuts 3Q estimates

Subscribers balk at split pricing, exit

Netflix has lowered its subscriber estimates for the third quarter by 1 million, the first sign that the consumer backlash over its drastic price changes is negatively impacting the Web streaming/rental service. The warning caused its stock to plunge 19%, or $39.46, to close at $169.25 on Thursday.

In a note to investors, the company lowered the expected number of DVD-only customers from 3 million to 2.2 million, while ratcheting down the number of projected streaming customers from 10 million to 9.8 million. The number of customers using both services is expected to remain unchanged.

Netflix reiterated its financial guidance for the quarter, though — and noted international subscription numbers were not expected to change.

“Despite the guidance revision, we remain convinced that the splitting of our services was the right long term strategic choice,” the company said in a statement. “We know our decision to split our services has upset many of our subscribers, which we don’t take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come.”

Even with these assurances, the news clearly rattled investors.

In July, Netflix made the controversial decision to separate subscription fees for its streaming and DVD rental service, effectively raising the rates for people who subscribed to both by 60%.

Customers voiced their displeasure, but the company has stood firm, insisting that the revenue boost will allow Netflix to spend more on its streaming service, both in terms of securing deals with studios and in R&D.

Analysts and investors, however, fear the subscription declines in the third quarter could pose a risk to any fourth quarter growth, which could put added pressure on the company.

The lowered subscription forecast comes on the heels of more bad news for the company. Earlier this month, Starz ended talks to renew its deal with Netflix. If that can’t be worked out, newer movie titles from Sony and Disney will be removed Feb. 28.

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