Newspaper article Charleston Gazette Mail

Netflix Facing Tougher Times as US Subscriber Growth Slows

Newspaper article Charleston Gazette Mail

Netflix Facing Tougher Times as US Subscriber Growth Slows

Article excerpt

SAN FRANCISCO - After years of spectacular success, Netflix is starting to hit some potholes. The high-flying internet video service added only 160,000 U.S. subscribers from April through June, its lowest gain in the period since splitting up its video- streaming and DVD-by-mail services five years ago. In addition to the U.S. slowdown, Netflix is wrestling with an ambitious international expansion amid stiffening competition, challenges that came into sharper focus Monday with the release of its second- quarter earnings. CEO Reed Hastings blamed the disappointing performance on cancellations by subscribers facing price increases of as much as $2 per month, following the expiration of a two-year rate freeze.

"People don't like price increases, we know that, Hastings said during a webcast reviewing the second quarter. "It is a necessary phase we must get through.

Higher Prices, More Competition

Analysts estimate that more than 20 million subscribers may be hit with a price increase between June and the end of this year. Netflix hasn't quantified how many people will be affected, but cited the price increases as one reason it predicts it will add just 300,000 U.S. subscribers in the third quarter - down from a gain of 880,000 at the same time last year.

The fallout from those phased-in price increases has been compounded by intensifying competition that now provide consumers an array of alternative streaming-video options.

Netflix fared better outside the U.S., but its second-quarter gain of 1.5 million international subscribers still missed management's projections.

The company's stock shed $13.16, or 13 percent, to $85.65 in after-hours trading. If that loss extends into Tuesday, Netflix shares will have lost about a quarter of their value so far this year. That's a harsh comedown for a stock that's been a Wall Street star since bottoming out at roughly $7 on a split-adjusted basis about four years ago.

A Victim Of Success

In a way, Netflix is a victim of its own success. With 47.1 million U.S. subscribers already signed up in the U.S., where they pay $8 to $12 per month, the company is having more trouble finding new households interested in anteing up. …

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