Netflix Shares Fall After Monday Report

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A mass exodus from Netflix contributed to shares in the company plunging 35 percent Tuesday, and the news may continue to get worse for the once cutting edge video streaming service.

Netflix said on Monday in its third quarter report, that September ended with 23.8 million subscribers, which is down about 800,000 from June. The company also expects to lose about 600,000 more subscribers after upsetting customers and admittedly damaging its strong reputation in the United States.

The company said in a letter to shareholders on Monday: “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.”

Netflix’s recent fall started with its decision to increase the price for DVD and its instant streaming service. The company also became a source of jokes—including a popular skit on Saturday Night Live—after it decided to split up its DVD and streaming service.

Thousands of confused customers started canceling the service after Netflix’s decision to change its DVD-by-mail service to Qwikster, which also added to the problem because it created separate accounts for people who wanted to rent DVD’s by mail and use the streaming service.

“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,” Netflix said in the letter.

The company did say however, that the “branding incident”—and the cancellations that followed—“was relatively minor.”

The rental service isn’t slowing down operations. In quarter one of next year, the company will be launching in the UK and Ireland. Netflix added that it is done with pricing changes.

Domestically, revenue grew 44 percent year-over-year to $799 million in Q3 despite cancellations, Netflix said.