October 15, 2004, 12:00 AM

Netflix to lower monthly fee to counter expected competition from Amazon

Netflix’s revenue and number of subscribers are up to record levels, but its monthly subscription fee and stock price decline as CEO Reed Hastings voices concerns about expected competition from Amazon in the online DVD rental market.

Netflix Inc.’s revenue and number of subscribers are up to record levels, but its stock price declined nearly 40% as of mid-day today after it announced a cut in its subscription fee yesterday and CEO Reed Hastings voiced concerns about expected competition in the online DVD rental market from Amazon.com Inc.

Netflix’s revenues rose 96% for the third quarter ended Sept. 30, to a record $141.6 million, up from $72.2 million in the year-ago period. Q3 net income grew more than fivefold year-over-year, to $18.9 million from $3.3 million.

But Netflix said it will cut its monthly subscription fee to $17.99 from $21.95 effective Nov. 1. Its stock traded on the Nasdaq today at about $10.50, down from yesterday’s closing price of $17.43 and a 52-week high of $39.77.

Netflix also said its number of subscribers as of the end of the third quarter, at about 2.34 million, was up 73% from a year ago and up 6% from the second quarter. About 96% of subscribers are paying customers, it added. The balance are free trials.

But for all the good news, Hastings sounded the alarm yesterday that Netflix will soon face more competition than ever before. "We recently learned from several sources that Amazon is likely to enter our market soon," he said in a conference call with analysts yesterday.

Amazon admits that there is demand for its offering of DVD rentals, but is keeping its plans close to its vest. “Our customers have encouraged us to offer low-priced, online DVD rentals, but we have no announcement to make at this time,” an Amazon spokesman says.

Netflix attributed its surge in net income to lower fulfillment costs resulting from customers ordering fewer DVDs per month. Its subscribers are free to order an unlimited number of DVDs per month, with no more than four out at a time.

Walmart.com and Blockbuster also offer online DVD rentals.

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