September 15, 2011, 5:01 PM

Netflix projects fewer new subscribers in Q3

Netflix is feeling consumer pushback from its recent decision to split its pricing.

Mark Brohan

Research Director

Lead Photo

Netflix Inc. is feeling consumer pushback from its recent decision to split its pricing. As a result, Netflix is revising its domestic subscriber numbers downward.

In July Netflix, No. 13 in the Internet Retailer Top 500 Guide said it was  eliminating a combination DVD-by-mail and unlimited streaming rental plan priced at $9.99 in favor of offering consumers the option to subscribe to either format for $7.99 each. If customers want DVDs by mail and streaming they now have to subscribe to both and pay a minimum of $15.98 per month to have one DVD checked out at a time and access to unlimited streaming.

In a letter to shareholders released in a new filing with the U.S. Securities and Exchange Commission, Netflix CEO Reed Hastings says the company is projecting the number of new subscribers for streaming digital content will total 9.8 million in the third quarter compared with an earlier projection of 10 million. The number of projected subscribers with both DVD-by-mail and unlimited streaming is expected to be flat at 12 million while the number of new DVD-by mail subscribers is expected to be 2.2 million, down from an earlier forecast of 3 million subscribers.

In the third quarter, Netflix expects its total U.S. subscriber base to range from 24.6 million to 25.4 million. For the second quarter ended June 30, the number of paid subscribers grew 70.7% to 25.6 million from 15 million in the second quarter of 2010, the company says.

“We know our decision to split our services has upset many of our subscribers, which we don’t take lightly,” Hastings wrote in his letter. “We believe this split will help us make our services better for subscribers and shareholders.

Despite forecasting a lower number of new domestic subscribers, Netflix is sticking with its third quarter financial guidance. Netflix expects Q3 revenue to range from $780 million to $805 million. Netflix is expected to release its third quarter earnings around Oct. 17.


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