Netflix Reports First Drop In Subscriptions

[Pirate]

LOS ANGELES (Reuters) - Netflix Inc (NasdaqGS:NFLX - News), the largest online DVD rental company, reported its first-ever quarterly drop in subscriptions and missed Wall Street revenue targets in the face of fierce competition from Blockbuster Inc. (NYSE:BBI - News)

The company also cut its forecasts for subscribers, revenue and profit for the year on Monday, and its shares fell 4.5 percent further in extended trading. The stock had already closed the regular trading session 12 percent lower after the company cut prices on two of its subscription plans.

Net income for the second quarter was $25.6 million, or 37 cents per share, compared with $17 million, or 25 cents per share, a year earlier, boosted in part by a $4.1 million settlement of a patent dispute.

Revenue rose 27 percent to $303.7 million, from $239.4 million in last year's second quarter but finished behind analysts' average expectation of $307.8 million, according to Reuters Estimates.

Wedbush Morgan Michael Pachter, who has a "sell" rating on Netflix, said the company "pretty much announced last quarter that Blockbuster was hurting them" but appeared to have cut marketing spending in the quarter.

"If they don't spend money on marketing they are delusional if they think it's going to attract millions of subscribers," Pachter said. "It looks like they are trying to ... essentially wait it out until Blockbuster raises prices."

The Los Gatos, California-based company, which pioneered online DVD rental, said its net subscriber base dropped to 6.74 million from 6.8 million in the first quarter.

Netflix now expects to end the year with 6.8 million to 7.3 million subscribers, down from a previous forecast of 7.3 million to 7.8 million. It dropped its revenue expectation to between $1.17 billion to $1.19 billion from $1.21 billion to $1.26 billion, and reduced its net income outlook to 62 cents to 76 cents per share from 76 cents to 83 cents per share.

Netflix has spent the last six months fending off a heightened challenge from Blockbuster, which said it will spend $170 million this year to promote its Total Access plan. The plan allows subscribers to swap DVDs rented online at its stores for free.

On Sunday, Netflix cut prices for two of its most popular plans to bring them in line with Blockbuster's online-only rental plan, which had been $1 cheaper.

For the quarter, the rate of churn, or subscriber cancellations, rose to 4.6 percent from 4.3 percent for the second quarter of 2006.

Subscriber acquisition costs rose to $44.02 from $43.95 in the same period of 2006.

The company reported stock-based compensation costs of $2.8 million for the second quarter, compared with $3.1 million in the same period last year.

Shares of Netflix were down 4.5 percent at $16.50 in extended trading after closing down $2.36, or 12 percent, at $17.27 in regular trading Monday on Nasdaq.

http://biz.yahoo.com/rb/070723/netfl...ults.html?.v=2

[MoonSka0]

Maybe I missed it in the article , but I didn't see how much Netflix is spending or has spent on advertising. It stated that Blockbuster has spent $170 million, but without comparison that number doesn't mean a whole lot to me. I still see both companies' commercials on TV quite often. I would also think that at somewhere along the line, you just start to hit a market saturation point.

[ganthc]

Originally Posted by MoonSka0

Maybe I missed it in the article , but I didn't see how much Netflix is spending or has spent on advertising. It stated that Blockbuster has spent $170 million, but without comparison that number doesn't mean a whole lot to me. I still see both companies' commercials on TV quite often. I would also think that at somewhere along the line, you just start to hit a market saturation point.

I agree at some point you hit a saturation point for subscribers. I don't think either company has reached that point yet. However, once you have those subscribers, the key is to increase their subscription plans, and that's how you make more money. Netflix also probably makes some good money on their dvd sales as well. I have bought from them from time to time.

[limacharliewhiskey]

It certainly doesn't help rental companies when SD DVDs are getting price reductions more quickly. When Best Buy & Circuit City have weekly sales for older DVDs at $5-6, more people will opt to buy the DVDs instead of renting them.

[ganthc]

Originally Posted by limacharliewhiskey

It certainly doesn't help rental companies when SD DVDs are getting price reductions more quickly. When Best Buy & Circuit City have weekly sales for older DVDs at $5-6, more people will opt to buy the DVDs instead of renting them.

Yes, but this is where services like Netflix really shine. You pay $17 and get 3 movies at a time for an unlimited amount. If you watch three movies a week, that's 12 in a month, which would cost you $60-72 if you were buying.

[Enron]

I'm not a Netflix subscriber but I think the company has come a long way from when they were a startup. I guess I look at Netflix as living on borrowed time. I just see cable and sat-tv companies readily able to squash Netflix into extinction if they chose to do so. In fact, I'm impressed Netflix has held their own in that regard.

I think Netflix is a great service, however, for those who don't want cable or sat-tv. Perhaps most of Netflix subscribers are people who feel this way, I don't know. One of the reasons I passed on Netflix is because I opted for cable and I get so many broadcast and On-Demand movies that I don't feel I need a service like Netflix for movies nor do I feel like I need to buy as many DVDs as I did in the past.

This format war between HD-DVD and Blu-Ray will hold Netflix hostage, I believe, until one format wins out over the other. Maybe Netflix can put some pressure on the industry to settle the war sooner rather than later but until then, Netflix may find itself forced to choose a side (like Blockbuster) and risk losing subscribers or stocking both formats and be stuck with thousands of titles that were on the losing side of the format war.

[firestorm]

As former Netflix customers, we noticed something unfortunate. The people that could truly appreciate such a service are those in rural areas, that still rent from the local gas station. But, they're at such a distance from the distribution centers that the time to exchange discs suffers. Here, in a major city, we could send back a disc, have it arrive the next day, be processed, and receive another back the following day (2 days). For my dad, it would easily take at least an extra day, if not 4 days total. There is no blockbuster (or any such chain) and they can't get cable. Netflix would still work for them, but its still a bummer that they would pay the same price as everybody else, but for less efficient service.

Honestly, we've simply taken a summer hiatus. We don't need any excuses to keep us from going outside and enjoying the weather. We've been tempted to switch to Block Buster when summer ends, but we were perfectly happy with Netflix and their web interfaces and features, and have no interest in visiting the local BB storefront, even for free rentals. We'll see.

[ganthc]

Originally Posted by Enron

I just see cable and sat-tv companies readily able to squash Netflix into extinction if they chose to do so. In fact, I'm impressed Netflix has held their own in that regard.

I guess I never really saw that there was a huge demand out there for Pay-per-view movie watching. Unless cable offered the same library (which I don't think they could) for the same rate, I don't see how it would match up.

[rixrex]

The way of the future will be HD downloads via I-net or cable company.

Maybe Netflix needed to get into a deal with Hollywood video to do what Blockbuster is doing, also because Hollywood tends to have the more esoteric films. Blockbuster around here is totally committed to the big ticket items to the point that they didn't have anything by Almodovar, for example, and would not order the Korean horror film, The Host, and their classics section is like, Wizard of Oz and It's a Wonderful Life. The kinds of films typical movie renters don't concern themselves with aren't in the store.

However, they were right there at the Hollywood video. But probably more important than copying Blockbuster, Netflix could push development of becoming a true internet film download site, for both purchase and rental. Once this method of viewing becomes viable for most people, the video store will be a happy nostalgic memory, like the movie theater now is for families and most older folks, meaning those not dating.

[Synaptic Flow]

I just ended my Netflix, but believe me, I didn't want to.