Netflix is bracing for customer backlash that could result in its slowest subscriber growth in more than three years amid changes to its online video and DVD rental service that will raise prices by as much as 60% in the United States
The sobering forecast issued Monday overshadowed the second-quarter earnings that accompanied the company’s outlook.
Netflix’s shares plummeted more than 10%, largely because the company expects its results for the current quarter ending in September to miss the targets set by stock market analysts.
In its financial report, Netflix also noted that it is rapidly growing its Canadian business and could begin making a profit in Canada by the third quarter as it grows its subscriber base, currently near one million.
In Canada, the company has expanded by charging a flat monthly fee of $7.99 for unlimited viewing of movies and TV shows from its library. But it has come under fire from TV broadcasters who want the service more broadly regulated.
“We continue to learn from our experiences in Canada in preparation for other international markets,” the company said in its letter to shareholders Monday as it released its financial report.
In the United States, the earnings shortfall stems from an anticipated slowdown in Netflix’s subscriber growth amid the most radical change in the company’s pricing since it began renting DVDs through the mail 12 years ago.
Instead of offering packages that combine DVD rentals and internet-delivered video for a single price, Netflix informed subscribers two weeks ago that it would sell the two entertainment options as separate plans.
The change means customers will have to pay substantially more if they want to get both DVDs and internet video from Netflix. For instance, a bundled plan that had been priced at US$10 per month will now cost $16 per month, beginning Sept. 1, for existing U.S. customers. The prices of other popular bundled plans will rise by 20% to 33%.
The price increases don’t apply to Netflix Canada.
Netflix expects most customers to pick between the DVD or streaming plan to avoid getting hit with a higher bill if they subscribe to both plans. The company said it anticipates another group of subscribers is so infuriated with the rate changes that they will stop being customers entirely.
Management didn’t estimate how many subscribers will cancel, but a large customer exodus appears to be factored into the company’s forecast for the current quarter.
Netflix expects to add as few as 190,000 subscribers or as many as 1.29 million subscribers in the current quarter. Either figure will be a falloff from the 1.9 million subscribers added in the April-June period to propel Netflix’s total customers to nearly 25.6 million. In last year’s third quarter, Netflix added nearly two million subscribers.
