Its been revealed that Netflix finished its third quarter with 23.79 million U.S. subscribers compared with the 24.59 million in had during its second quarter. Its Chief Executive CEO Reed Hastings has admitted that the company’s recent stumbles, including price hikes and the now canceled plans for Qwikster. Its been reported that the revenue reached $822 million, up 49 percent year-over-year, while profit hit $62 million, up 63 percent from the same period last year. However, the company projects to be hit with a loss of between $60 to $70 million in Q1 of 2012 due to its expansion into the UK and Ireland. Furthermore its due price in Hike Netflix lost 800,000 subscribers last quarter in the US, leaving it with 23.8 million subscribers, of which 21.5 million subscribed to streaming and 13.4 million subscribed to DVD rentals.
In a letter to shareholders, Netflix acknowledged that it handled communication around the price increase poorly:
The Internet is transforming video entertainment, stream by stream, consumer by consumer, nation by nation. Our opportunity is to be one of the leaders of this transformation with the best streaming video subscription service on the planet. The last few months, however, have been difficult for shareholders, employees, and most unfortunately, many members of Netflix. While we dramatically improved our $7.99 unlimited streaming service by embracing new platforms, simplifying our user?interface, and more than doubling domestic spending on streaming content over 2010, we greatly upset many domestic Netflix members with our significant DVD?related pricing changes, and to a lesser degree, with the proposed?and?now?cancelled rebranding of our DVD service. In doing so, we’ve hurt our hard?earned reputation, and stalled our domestic growth. But our long?term streaming opportunity is as compelling as ever and we are moving forward as quickly as we can to repair our reputation and return to growth.
. . .We think that $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 absent that explanation, 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. Our primary issue is many of our long?term members felt shocked by the pricing changes, and more of them have expressed that by cancelling Netflix than we expected.
Because of this, our revenue and profits in Q4 will be lower than we had anticipated, but we’ll remain profitable on a global basis. In Q1’12 we’ll be launching in the UK and Ireland, as we had planned. For a few quarters starting in Q1, we expect the costs of our entry into the UK and Ireland will push us to be unprofitable on a global basis; that is, domestic profits will not be large enough to both cover international investments and pay for global G&A and Technology & Development. After launching the UK and Ireland, we will pause on opening new international markets until we return to global profitability. We plan to do that by increasing our global streaming subscriber base faster than we increase our costs.
