February 27, 2024

Media Decoder Blog: Netflix Stock Falls After Change in Pricing

3:02 p.m. | Updated In wake of new prices that force some customers to pay more, greater numbers of people are canceling their Netflix subscriptions than the company expected.

The company on Thursday morning revised downward, incrementally, its subscriber estimates for the quarter of the year that ends in two weeks. It did not change its financial guidance for the quarter. Still, its stock dropped almost 15 percent in heavy trading when the market opened Thursday.

The revision reflects the negative reaction to Netflix’s decision, announced in July, to separate its DVD-by-mail service from its faster-growing Internet streaming service. Before, DVD-by-mail was a $2 add-on for some streaming subscribers; now, each service now costs $8.

Some subscribers were upset by what was effectively a price hike, and a subset of them have cancelled their Netflix accounts.

In July, the company said it expected that it would end the third quarter with 22 million subscribers to the streaming service, 12 million of whom would also opt for the DVD-by-mail service. It expected back then that 3 million would opt only for the DVD service.

Now, it’s expecting that just 2.2 million will opt only for DVDs, a drop of 800,000.

Netflix also anticipates a slight drop in streaming subscribers, to 21.8 million, a difference of 200,000 from the earlier estimate. It still expects 12 million of those streaming subscribers to also pay for DVD-by-mail, helping it to generate more revenue overall.

“Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term strategic choice,” the company wrote in a letter to shareholders on Thursday.

Earlier this summer, Netflix’s chief executive, Reed Hastings, said he recognized that “we have to face those subscribers who are upset by the price hike this quarter.”

He said then that the price change would benefit Netflix in the fourth quarter and beyond, and that the company intended to spend the increased revenue on its streaming service, partly on research and development. “As our subscriber base continues to grow, we’re able to spend more on improving that service, both on the R. D. side and on the content availability side,” he said.

The revised estimates were the second serious blow to Netflix in September. At the beginning of the month, Starz, which supplies Sony and Disney films to the service, said it would stop doing so in February. The content from Starz helped to jump-start Netflix’s streaming service several years ago, but the two companies could not come to terms on a new contract, according to Starz.

Also this month, Netflix started new streaming services in Brazil, Mexico and many other Latin and South American countries. Previously the service was only available in the United States and Canada.

Anthony DiClemente of Barclays Capital said in an analysts’ note Thursday afternoon that both the revised expectations and the loss of Starz “adds to the risk and uncertainty surrounding Netflix” in the short-term.

But he noted that Netflix “remains among the best user experiences for watching video online” and credited the company for remaining “disciplined on costs” and pursuing international opportunities.

Article source: http://feeds.nytimes.com/click.phdo?i=19a28059e13d368bef12320099d6ecc7

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