Subscribers got hit in their wallets by the recent Netflix price increase, but they weren’t the only ones. The company had to revise its domestic subscriber estimates downward by 1 million customers and its share price nosedived by nearly a fifth. Even so, Netflix confirmed its international subscriber guidance and its financial guidance for the quarter.
“Despite the guidance revision, we remain convinced that the splitting of our services was the right longterm strategic choice,” read a letter to shareholders signed by chief executive officer Reed Hastings and chief financial officer David Wells.
They said divorcing DVD rentals from the streaming service would enable Netflix to grow the international streaming service more quickly. Additionally, the increased revenue from subscribers and eliminating the postage and handling costs associated with DVDs will make it possible for Netflix to license more streaming content and provide a more appealing service.
Netflix will need to find new sources to fill its content library, now that Starz Entertainment declined to renew its licensing agreement on Sept. 1.
Shares of Netflix plummeted 19 percent to $169.25 Thursday, its lowest close since November and erasing its 2011 gains. That’s down 44 percent from its all-time high of $304.79 in July. There was no relief on Friday, when Netflix shared slid an additional 8.3 percent, to $155.16.
“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,” the letter from Hastings and Wells concluded.
Business Week – http://tinyurl.com/4xujhsp
Los Angeles Times – http://tinyurl.com/3zgogjr
Wall Street Journal – http://tinyurl.com/3vgbkhp
Photo by flickr user Taro the Shiba Inu, used under Creative Commons license
Infographic source: Netflix letter to shareholders