Netflix: We Hate Making Subscribers Upset (but Will Anyway)

Paul Lilly

Netflix acknowledged in its Q2 earnings report that its recent price hike will likely cause revenue to fall in the third quarter before rebounding in the fourth. Investors responded by feeding the hybrid DVD-by-mail/streaming movie service a heaping slice of humble pie in after hours trading, sending the company's sky-high stock price down more than 10 percent.

Revenue for the quarter ended June 30 was $789 million, which represents a 52 percent year-over-year increase, but is slightly below the $791 million figure analysts were expecting. Netflix said it grew its subscriber-base 70 percent from 15 million one year ago to 25.56 million global subscribers currently (24.59 million in the U.S.). Some of those customers were hoping Netflix would take a mulligan on its recent price hike, but that doesn't appear likely at this point.

"It is expected and unfortunate that our DVD subscribers who also use streaming don't like our price change, which can be as much as a 60 percent increase for them from $9.99 to $15.98, when it goes into effect for each subscriber upon their renewal date in September," Netflix said. "Some subscribers will cancel Netflix or downgrade their Netflix plans. We expect most to stay with us because each of our $7.99 plans is an incredible value. We hate making our subscribers upset with us, but we feel we provide a fantastic service and we're working hard to further improve the quality and range of our streaming content in Q4 and beyond."

On a conference call with investors, Netflix CEO Reed Hastings said "the noise level was actually less than we expected. Given a 60 percent increase, we knew what we were getting into," according to USA Today . In other words, don't hold your breath waiting for Netflix to reverse course, all you'll accomplish is turning from red to blue in the face.

Even with the investor backlash, Netflix probably isn't sweating bullets. The company is optimistic that Q4 could end up being its first billion dollar quarter, which would surely drive Netflix's stock right back up. In addition, Netflix said it's making "great progress" on integrating its service with Facebook and will likely launch it before its next earning report.

Netflix Q2 Earnings Report (PDF)

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