Netflix is bracing itself for a loss of about 1 million subscribers as it releases its 3rd quarter forecast. The movie subscription company expects the losses to stem from their decision to split their pricing of streaming content and the DVD rental service by mail delivery subscriptions into two separate charges. Chief Executive Officer Reed Hastings said it would have 24 million subscribers at the end of the third quarter, down from a prior forecast of about 25 million.
The different price rates kicked into effect at the beginning of September. The main portion in the drop of subscriptions will come from the DVD by mail side of the new charges. The company expects to have 2.2 million such subscribers, down from the previous forecast of 3 million and only a drop to 21.8 million streaming customers from a 22 million.
Previously, Netflix had offered its streaming and by mail subscriptions under one package price. Under the new price rates, they now charge for those options separately at a higher cost than the original combined package. Netflix shares have fallen nearly 40 percent since the price hike was announced.
Another blow to the company will most likely come next year due to the fact on September 1, 2011, Starz announced it will remove their movies from Netflix streaming on February 28, 2012. Since the agreement was strictly for streaming movie titles, DVD rentals through Netflix will not be affected. That break up will deplete the streaming video catalog by about 2,500 new movies and TV shows.
“There are other options popping up that may be attractive” to consumers, said Merriman Capital analyst Eric Wold, who has a “neutral” rating on Netflix and a “buy” on Coinstar.
The news caused a sell off on Wall Street for Netflix stock (NFLX). By the time the market closed, shares had fallen to prices below $39.46, or almost 19%, to close at $169.25. The losses erased all of company gains for the year and sent the shares to their lowest point since last November.