Despite uproar, Netflix expects price overhaul to pay off

Netflix’s quarterly results today are being closely watched for the impact of the customer outrage over the price hikes recently announced by the company through the separation of its DVD-by-mail and online streaming services. So here’s the upshot: The company expects some short term pain from the price change to pay off in the form of a long-term financial boost.

First for that short-term pain: The company expects its U.S. subscriber base to remain essentially flat by the end of the current quarter (ending in September) at 25 million accounts. That’s below the minimum of 26 million subscribers that analysts had been expecting, as reported by AllThingD.com’s Peter Kafka.

“Some subscribers will cancel Netflix or downgrade their Netflix plans,” write CEO Reed Hastings and CFO David Wells in a letter to shareholders. “We expect most to stay with us because each of our $7.99 plans is an incredible value. We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we’re working hard to further improve the quality and range of our streaming content in Q4 and beyond.”

They add later, “We expect domestic net additions in Q3 to be lower than the previous year Q3, and because of the timing of the price change, revenues will only grow slightly on a sequential basis.”

And here’s the kicker that explains the financial gamble Netflix is taking, and how it expects the bet to pay off: “In Q4, we expect domestic net additions to return to a pattern of year-over-year growth while revenue will reflect a full quarter’s impact of the pricing changes, which could result in Q4 being our first billion dollar global revenue quarter, driven by strong U.S. performance.”

Among other notable items, the company said it created a new division dedicated to developing the DVD business, but Netflix has “no intention of selling” that business, the executives say.

They also say Netflix isn’t planning to bid on Hulu, and hasn’t seen any impact from Amazon boosting its library of films and TV shows available free to its Amazon Prime members.

Previously: Poll: Time to dump Netflix?

  • http://twitter.com/nitecourt Greg

    I was a member since 1999.  I just canceled today.

  • Ehphil

    will be felt in the next 2 quarters mostly, since the price increase hits Sept 1st my family is cancelling the streaming portion (but keeping 2 videos at a time) end of August.