Netflix Bracing For Slowdown

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Netflix Inc. is bracing for a backlash to its recently announced price hikes that could result in its slowest subscriber growth in more than three years.

The company's sobering forecast Monday overshadowed its second-quarter earnings that easily topped Wall Street's expectations.

Netflix's shares plummeted by more than 10 percent, largely because the company expects its results for the current quarter ending in September to miss the targets set by industry analysts.

The shortfall stems from an anticipated slowdown in Netflix's subscriber growth amid changes to its online video and DVD rental service that will raise prices by as much as 60 percent. It's most radical change in the company's pricing since it began renting DVDs through the mail 12 years ago.

Instead of offering packages that combine DVD rentals and Internet-delivered video for a single price, Netflix informed subscribers two weeks ago that it would sell the two entertainment options as separate plans.

The change means customers will have to pay substantially more if they want to get both DVDs and Internet video from Netflix. For instance, a bundled plan that had been priced at $10 per month will now cost $16 per month, beginning Sept. 1, for existing customers. The prices of other popular bundled plans will rise by 20 percent to 33 percent.

Netflix expects many customers to pick between the DVD or streaming plan to avoid getting hit with a higher bill if they subscribe to both plans. The company said it anticipates other subscribers irked by the rate changes will stop being customers entirely.

Management didn't estimate how many subscribers will cancel, but a large customer exodus appears to be factored into the company's forecast for the current quarter.

Netflix expects to add as few as 190,000 subscribers or as many as 1.29 million subscribers in the current quarter. Either figure will be a falloff from the 1.9 million subscribers added in the April-June period, which propelled Netflix's total customers to nearly 25.6 million. In last year's third quarter, Netflix added nearly 2 million subscribers.
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