Netflix slashes its forecast for subscriber gains

Associated Press Modified: October 23, 2012 at 7:45 pm •  Published: October 23, 2012
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LOS ANGELES (AP) — Netflix slashed its prediction for how many U.S. video-streaming subscribers it would add this year after subpar third-quarter results, causing a sharp sell-off in its stock in after-hours trading.

The Los Gatos, Calif.-based company said it added 1.2 million net streaming subscribers in the U.S. in the three months through September, which was on the low end of its forecast for gains between 1 million to 1.8 million.

The disappointing figure caused Netflix to cut its estimate for full-year U.S. streaming subscriber additions to between 4.7 million and 5.4 million. Previously, Netflix predicted it would gain as many as 7 million domestic streaming subscribers by year's end.

Growing streaming subscribers in the U.S. is crucial to Netflix because the number of DVD-by-mail subscribers continues to fall and its losses internationally are mounting. Last week, it added streaming service in Sweden, Denmark, Norway and Finland.

Netflix also needs more subscribers because it is sticking to its price of $8-a-month for unlimited video streaming. The company faced a huge backlash last year when it raised prices as much as 60 percent for people who subscribed for both DVD service and streaming. The company says its reputation has yet to recover.

CEO Reed Hastings brushed off the subscriber miss, even as Netflix shares were hammered, falling $11.13, or 16.3 percent, to $57.09 in after-hours trading.

"In perfect hindsight, it was not the best choice to put out that high a goal," he said in an interview with The Associated Press. "We want high goals, we're seeking to grow very quickly and have the member satisfaction be extremely high. But five million is great progress. And we look forward to building on that."

Netflix's chief financial officer, David Wells, said the heavily watched London Olympics cut into new subscriber signups in August and they didn't bounce back very strongly in September. The company also said that it was forced to turn off service to customers more often because it couldn't collect a valid credit or debit card — a result of it expanding into more lower-income homes.

Hastings said he still believes the company has the potential to sign up 60 million to 90 million homes in the U.S. in the long run, about two to three times the number that now subscribe to pay TV channel HBO.

"We feel that Netflix offers such a good value at $7.99 unlimited that even low-income households will choose to subscribe to Netflix in large numbers," he said.

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