From the this-should-come-as-no-surprise department: Netflix said today it underestimated how many people would be turned off by its decision to raise prices.
The Web's top video rental service said on July 25 that it expected to report 25 million overall subscribers for the third quarter after doing away with a popular hybrid subscriber plan that gave customers access to DVDs as well as the company's Internet-streaming service for $10 per month. But Netflix has now lowered those expectations to 24 million.
Netflix split DVD rental and the streaming service into separate plans, each costing $8 a month. Seeing the combined rate jump from $10 to $16 angered many subscribers, something the company waved off and said wouldn't add up to much.
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The company's earlier projections called for 10 million streaming-only users but those have been reduced to 9.8 million. Netflix said there likely would also be nearly 800,000 fewer DVD-only subscribers in the third quarter as well, down from 3 million to 2.2 million. The good news is that the number of people that Netflix expects to pay for both streaming and DVD plans is unchanged at 12 million.
"Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term strategic choice," Netflix said in a statement.
That may be, but the market seems very worried about the short term. Immediately after Netflix announced the price hike, Wall Street seemed elated and the company's stock soared past $300. But since then, the customer backlash and Netflix's recent struggles acquiring content have eroded investor confidence.
In premarket trading this morning, Netflix shares were in a free-fall, down $30, or nearly 15 percent, to $178.
Netflix listed four reasons to separate the subscriber plans.
to create a dedicated DVD rental division that takes pride in great execution and maximizes the opportunity for disc rental over the coming decade;
to enable us to improve our global streaming service even more rapidly, because it is not meshed with a domestic DVD business;
to enable us, with the growth in revenue, to license more streaming content and thereby improve our streaming service even more;
to remain very price aggressive, with $7.99 per month for unlimited streaming of a huge library of TV shows and movies, and $7.99 per month for unlimited DVD rentals, 1 out at-a-time.