Netflix observed a disturbing loss of investors in the after hours trading, after the company announced on Monday afternoon that it had lost 810,000 subscribers in the third quarter. The company also spread out a word of caution that the sales and earnings may not deliver the expected results in the 4th quarter. The announcement which came along with the revelation of company’s Q3 earnings lead to a fall of over 31% in shares.

Falling short on the expected 24 million subscribers, company ended the quarter with 23.79 million subscribers. However the management has forecasted to gain U.S. subscribers in the ongoing quarter, although no specific target is proclaimed. In contrast to the previous year’s earnings of $38 million, or 70 cents per share, at the same time last year, the company earned $62.5 million, or $1.16, per share, in the third quarter.

Netflix’s customers were let down after the CEO Reed Hastings decided to raise prices for a popular subscription plan. Instead of paying $10 for access to both DVD-by-mail operations and streaming video, Netflix divided it into separate plan which costs $7.99 each.

Although he attempted to follow up last month and announced Qwikster, a separate service for the spin off DVD-by-mail operations but it failed to boost up the confidence of users when he abruptly scrapped Qwikster plan, just three weeks later. Netflix at that time appeared directionless and focus less.

He followed up on that by announcing last month that he would spin off DVD-by-mail operations into a separate service called Qwikster. It didn’t help to boost confidence much when he abruptly scrapped the Qwikster plan three weeks later. Netflix appeared rudderless.

In a letter to subscribers it issued, Netflix detailed the chronology of errors that it said would hurt its fourth quarter performance:

“$7.99 for unlimited streaming and $7.99 for unlimited DVD are both very aggressive low prices, relative to competition and to the value of the services, and they are the right place for Netflix to be in the long term. What we misjudged was how quickly to move there. We compounded the problem with our lack of explanation about the rising cost of the expansion of streaming content and steady DVD costs, so that … many perceived us as greedy. Finally, we announced and then retracted a separate brand for DVD. While this branding incident further dented our reputation, and caused a temporary cancellation surge, compared to our price change, its impact was relatively minor.”

“The last few months…have been difficult for shareholders, employees, and most unfortunately, many members of Netflix,” Hastings wrote in the letter to investors. “We’ve hurt our hard-earned reputation.”

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About the Author

John Laster is a technical news junkie and Founder of TechieApps. He loves everything about digital world, technologies, social media and gadgets and has been prophetic in identifying the best ways to leverage and harness such news to drive sales growth for companies ranging from startups to huge organizations.

5 comments

  1. i disagree completely with the assessment that $7.99 is the appropriate pricing structure for unlimited streaming or unlimited DVDs 1 at a time. For folks on a limited income, a better price would have been $10 for both. Also, the selection you have for streaming is still very limited. It might be ok to pay $7.99 for streaming alone if I had the same selections in both but I don’t. Streaming is still not up to par in my opinion.

  2. The number of good movies seems to have been depricated, Netflix lost the stars contract, who seems to be the provider for most of the films. So along with losing the DVD Services going up in prices, and providing old tv shows we all saw for free. Many customers have had enough,and sympathy for Netflix is as scarce as first run movies on Netflix.

  3. Great post. Honestly though, I’ve gotten quite pissed off at Netflix, they’ve really gone downhill since I joined.

  4. I think Netflix spreading word of caution that their numbers won’t be good for the final quarter’s results isn’t necessary. I’ve already read in the news that Redbox is going to start streaming in that quarter, which will, I’m sure, lure some Netflix customers away. I dumped them both a while ago after I took the advice of one of my co-workers at DISH and signed up for a free trial of Blockbuster @Home. After I found out that I could stream and rent DVDs, Blu-rays, and video games for less than what I was paying for Netflix plus the occasional rental at Redbox, I made the switch and haven’t regretted it for a moment.

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