Is Netflix in a death spiral?

Published: Friday, Sept. 16 2011 8:56 a.m. MDT

Not too long ago the Netflix model for combining DVD and online streaming subscriptions seemed like a stroke of genius.

That's now no longer the case.

Netflix (NFLX) stock plummeted nearly 19 percent during trading Thursday on the heels of the company releasing a guidance update that lowered projections to reflect 1 million fewer domestic customers than previously anticipated.

"The hottest success story in the entertainment industry until this summer, Netflix is losing subscribers as well as stock-market value in the wake of a controversial price increase," the Los Angeles Times' Company Town blog reported. "Netflix says it now expects to have 24 million subscribers in the U.S. on Sept. 30, down from 24.6 million subscribers the company had at the end of June. Netflix previously estimated it would have about 25 million subscribers at the end of September."

Uncertainty started shrouding the future of Netflix in July when the company announced it would start charging separately for its streaming video and DVD-by-mail services — effectively enacting a 60-percent spike in subscription rates. Hundreds of thousands of subscribers responded by dropping Netflix altogether rather than forking over heftier monthly fees.

"Netflix stated they expected losses after rolling out the new plans," the Washington Post

The company's Thursday release vaguely explained, "Two months ago we took a big strategic step by separating streaming and DVD-by-mail into two distinct services, and we now have more visibility into our expected Q3 2011 results. … We (are) lowering our domestic subscriber estimates. … Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term strategic choice.

twitter: askargo

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