Newspaper article International New York Times

Netflix Blames Credit Cards as Profit Dives

Newspaper article International New York Times

Netflix Blames Credit Cards as Profit Dives

Article excerpt

The company said on Wednesday that third-quarter profit tumbled 50 percent compared with last year.

Netflix has hit a bump in the road on its quest to reach 60 million to 90 million subscribers in the United States and, by the end of 2016, become fully global.

The company said on Wednesday that third-quarter profit tumbled 50 percent compared with last year, missing its forecasts as it reported worse-than-expected streaming growth in the United States.

Netflix said it added 3.62 million total streaming members during the quarter, as it continued its aggressive global expansion and investment in original programming. That brings the total number of paid streaming members to 66.02 million, up from the 50.65 million during the same period of 2014.

In the United States, Netflix missed its forecasts for subscriber growth. The company added 880,000 subscribers in the United States during the quarter, less than the 1.15 million net additions it had expected. Its total paid membership count in the country is now 42.07 million, short of its forecast of 42.51 million.

Netflix said it had missed its growth expectations because it failed to factor in the "involuntary churn" related to the transition to new chip-based credit and debit cards. Executives said that account numbers could change when the cards were replaced, which made it more difficult for members to renew their subscriptions.

Netflix also faces fierce competition from streaming rivals like Amazon, HBO and Hulu, which are significantly increasing their investments in programming and other services.

Amazon, for instance, added a feature during the quarter that lets subscribers download videos, and Hulu added an ad-free service.

Executives said that despite missing its forecasts, Netflix remained on track to reach its goal of having 60 million to 90 million members in the United States because of the continued growth of Internet television.

"Sure there are a lot of competitors, but there always have been," Reed Hastings, Netflix's chief executive, said on the earnings call. "We've competed against cable and satellite. We've competed against YouTube and all kinds of pay-per-view and DVDs. So there are a lot of ways to consume entertainment, and despite all of those, Netflix keeps growing because we keep improving."

Outside the United States, Netflix beat its expectations for growth, adding 2.74 million international streaming subscribers. That brought its total international paid membership to 23.95 million. During the quarter, Netflix started its service in Japan, and it expects to expand its service to Italy, Portugal and Spain next week.

Net income for the quarter was $29.4 million, down from $59.3 million during the same period last year. The company had forecast net income of $31 million.

Netflix has told investors that it will break even until the end of 2016 as it pushes ahead with its plans to make its streaming service available around the world by the end of next year. …

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