Business, Finance & Economics

Netflix's higher prices lead to fewer viewers

Netflix Inc. stocks plummeted on Thursday after the film-rental company announced that it was cutting its U.S. subscriber forecast by 1 million customers. Some 600,000 U.S. customers dumped the service after July 12, when Netflix announced it was raising prices 60 percent for subscribers who wanted access to both DVDs and streaming content, The Associated Press reports.

The Los Gatos, Calif.-based company said it will have 2.2 million domestic DVD-only subscribers at the end of this quarter, compared with its previous forecast of 3 million, and 9.8 million streaming-only users, down from its earlier prediction of 10 million.

Following the news, Netflix shares fell 19 percent, the most in more than three years, Bloomberg Businessweek reports. Netflix's stock price is now more than 40 percent below where it stood before the company unveiled the higher prices, the AP reports.

According to Bloomberg Businessweek:

Netflix said it plans to use the revenue from the price increase to license more streaming content. The first company to offer an all-you-can-eat streaming service, Netflix is seeking to expand its library of more than 20,000 online titles amid increasing competition from Hulu LLC and online retailer Inc.

But that content has not been expanded yet, and Netflix has had some recent trouble negotiating licensing rights. This month, Starz Entertainment announced it would end its streaming deal with Netflix next spring.

"Netflix isn't looking like it's as good a deal because their prices are getting higher and their content isn't getting any better," Wedbush Securities analyst Michael Pachter, told the AP. "It's like they have taken the beef away from the buffet."

Anthony DiClemente of Barclays Capital said in an analysts’ note that both the revised expectations and the loss of Starz increases the “uncertainty surrounding Netflix” in the short-term, the New York Times reports. But he pointed to the company’s international expansion as a positive move and noted that Netflix “remains among the best user experiences for watching video online.”

(More from GlobalPost: Could Netflix beat cable TV in Latin America?)

In its announcement today, Netflix described its decision to raise prices as "the right long-term strategic choice." The AP reports that even with fewer subscribers, Netflix expects to bring in $10 million to $25 million more from its customers from July to September than it did between April and June.