Netflix's 800,000-subscriber loss: A 'horrid' outlook?
More bad news for Netflix: On Monday, the company revealed that it had lost more than 800,000 customers in the third quarter, after a vehemently contested price hike and failed attempt to split its streaming and DVD-by-mail services into separate companies. While the company also reported third-quarter earnings of $1.16 a share, surpassing most analysts' expectations, it wasn't enough to prevent investor panic over the worse-than-expected subscriber exodus. Netflix stock plummeted nearly 35 percent in after-hours trading, and the company's value is less than a third of what it was just three month ago. Now, some are saying the company's fourth quarter outlook is "horrid." Can Netflix turn things around?
Netflix might never recover: "For most of the past two years, Netflix has been one of the great internet success stories," says Greg Sandoval at CNET. But today, Netflix is "in jeopardy of becoming a cautionary tale of hubris and collapse." In the past, Netflix depended on a "virtuous cycle": The more content the company licensed, the more customers it attracted, and the more money Netflix had to acquire more content. Now, Netflix has lost its deal with Starz — and with it, access to a host of recent movies from major studios — and subscriber numbers are plummeting. The "virtuous cycle" is turning into a "nightmarish vortex," wherein Netflix doesn't have the content to attract and keep customers, and it doesn't have the revenue to get better content.
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Don't write off Netflix yet: "If they stop making mistakes, this is fixable," says Frost & Sullivan analyst Dan Rayburn, as quoted in the Los Angeles Times. While competitors like Blockbuster and Amazon have tried to take a bite out of Netflix's business, they've yet to significantly impact it. That lack of any real competition could be a "saving grace" for Netflix.
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The key is figuring out what customers want to watch: "When Netflix was a DVD company, it could afford to offer just about every movie or TV show every made," says Peter Kafka at All Things D. "Now that it's a streaming video company, it has to pick and choose." Will that strategy work? It all depends on Netflix's ability to determine what content current and future customers want versus what the company can afford. Remember, Netflix still has 25 million subscribers and a good deal of money to play with.
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