Bloomberg News

Netflix Says Service Changes Led to Subscriber Volatility

September 21, 2011

(Updates with Wells comment on DVDs in last paragraph.)

Sept. 21 (Bloomberg) -- Netflix Inc. said changes to its mail-order and streaming services and pricing have angered customers and led to subscriber volatility.

“We’ve ruffled a lot of feathers,” Chief Financial Officer David Wells said today at a Goldman Sachs Group Inc. conference. The company has been “humbled” by customer reaction to the changes, he said.

The shares have slid 38 percent since Netflix lowered its subscriber forecast on Sept. 15. The cut reflected customer anger over the Los Gatos, California-based company’s plan to split its mail-order DVD and online services, and charge more to people wanting both.

The company is unlikely to respond to customer anger by rolling back prices, even for a short term, since that would be “kicking the can down the road,” Wells said.

Netflix fell $1.53 to $128.50 at 4 p.m. New York time in Nasdaq Stock Market trading, the seventh straight decline.

The loss of content from the Starz cable network has fed the customer reaction to the price increase. Starz wanted too much to renew the contract for online access to films that ends in February, Wells said. The company today extended and expanded a licensing accord with Discovery Communications Inc.

Most future content deals will be for TV shows, not movies, Wells said in New York. The company may also spend 15 percent of its budget on original programming.

Wells also said Netflix plans to add social-networking features to its video service. Facebook Inc. may announce partnerships with Netflix and competitor Hulu LLC, the New York Post reported.

Netflix announced over the weekend that the DVD by mail business would be renamed Qwikster, and that the operation would have a separate website and billing.

The decision by Netflix to split and rebrand its mail-order DVD business from the Netflix streaming service will help online growth, Wells said. The DVD business will focus on operating margin while the online business will emphasize subscriber growth, he said.

--Editors: Rob Golum, Anthony Palazzo

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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