Netflix: Expanding Overseas, But Contracting Here at Home
Netflix is in a tricky period of “expansion and contraction” as it announces expansion into Europe, but it also released its third quarter earnings, which had all kinds of negative news.
The Tuesday, October 25th Los Angeles Times (“Netflix announces expansion into Great Britain, Ireland”) reported that Netflix was going to expand its streaming service into Great Britain and England in early 2012. It is also exploring expanding in South Korea, the Netherlands, Belgium, Luxembourg and the Scandinavian nations.
While the expansion seems like a natural way forward for Netflix: it isn’t without challenges. Amazon.com owns “Lovefilm,” an already powerful video subscription service in Britain and Ireland.
The bigger news is the steep decline Netflix has experienced over the past several months; with the consequences of its actions coming to rest in its third quarter earnings report as discussed in the October 25th Wall Street Journal article “Netflix Adds a New Woe: Red Ink”
As you may remember, Netflix made two highly controversial moves during the summer months. First, it raised its DVD rental package 60%, from $10 a month to $16. Second, it announced a split of its DVD-by-mail business from its streaming video business. “Netflix” was going to be for streaming, and “Qwikster” was going to be for DVD-by-mail.
Well, the customer outrage over having to maintain accounts on two different websites caused Netflix to kill the “Qwikster” spin-off just weeks after it was announced; but the price hike, according to CEO Reed Hastings, is here to stay.
So, how did these moves translate into their third quarter operating results? For starters, Netflix lost more than 800,000 subscribers during the third quarter from July to September; which was more than they were expecting (they had estimated approximately 600,000,) leaving them with a U.S. subscribership of about 23.8 million.
Netflix did make money in the quarter: with revenue rising 49% and earnings going up 63%; and they do expect to make money in the fourth quarter, but not nearly the same amount.
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