810 000 subscribers abandon Netflix

Netflix can’t seem to catch a break. This week, profits for the once mighty streaming video service plunged as 810 000 subscribers abandoned ship.

Netflix went on record to say that its net profits rose 65%. This is well over US$62-million in earnings. In stark comparison, Netflix’s 2010 profits for the same quarter were in the region of US$822-million.

Once Wall Street learned of the loss in subscribers, shares plummeted 27% from US$304 to a new low of US$87.

CEO of Netflix, Reed Hastings compiled a hasty letter to shareholders as an accompaniment to the dismal earnings report.

Its 23.8-million subscribers have endured a barrage of bizarre choices, such as Netflix splitting its physical DVD sales from its streaming services, and drastically increasing its prices. Netflix quickly quashed “Qwikster”, its DVD-by-mail service, with Hastings saying, “In hindsight, Qwikster is hard to justify. Qwikster became the symbol of Netflix not listening. Going forward, we are going to be pushing and promoting streaming”.

For many, the latest wave of cancellations correlates with the price hike. Hastings mused on Netflix’s managerial mistakes, saying “We greatly upset many domestic Netflix members with our significant DVD-related pricing changes, and to a lesser degree, with the proposed-and-now-cancelled rebranding of our DVD service.”

“In doing so, we’ve hurt our hard-earned reputation and stalled our domestic growth. Our primary issue is many of our long-term members felt shocked by the pricing changes, and more of them have expressed that by cancelling Netflix than we expected”.

The troubling earnings report comes in the light of a strong global presence which Netflix is hoping to cement. It recently announced plans to expand to Ireland and Britain by 2012, stating that any move may lead to a first quarter net loss. The hope being that costs would be offset by a new surge of subscribers.

Hastings remains optimistic about Netflix’s future. “We think the future is brightest by focusing on streaming. I think everybody sees that Internet video is going to be an enormous market in the coming years,” he said.



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