Netflix Cuts Outlook Due to Price Hike

Netflix Inc., one of the leading internet subscription services for movies and TV shows, announced its second quarter earnings. The company reported a 57% increase in quarterly profit, but shares fell by 10% following the release of its results.

The California-based company reported an income of $682 million, which is up by $44.5 million from the previous quarter this year.  Revenue also rose to $788.6 million, from $519.8 million last year. Netflix already 24.6 million US subscribers as of June of this year, and expects to have 25 million US subscriber by the end of third quarter.

Even though the company did well for the quarter, Netflix cut its revenue outlook for the next quarter with the recently implemented price hike.  Netflix discontinued its unlimited plans for both streaming and DVD by mail. Instead, the company offered a separate rate for unlimited streaming and unlimited DVD by mail.  Since last week, Netflix received numerous complaints from angry customers who threatened to quit or switch to Blockbuster.

Looking ahead, Netflix plans on extending its services into 43 Latin American countries, and into Europe by the second half of this year. The company is looking to launch its streaming services in more developed markets, like Spain and the UK as its pilot markets.

In addition, the company is reportedly close to closing a deal with DreamWorks Animation for streaming rights of the studio’s animated movies. Currently, DreamWorks still has a contract with HBO for streaming its movies until 2014.  However, HBO agreed to allow DreamWorks out of the contract two years early. Once the deal closes, Netflix can start streaming DreamWorks movies by 2013.  Spokespersons from both sides declined to comment about the deal. However, according to some sources close to the deal could close some time this week.

Netflix also planned on having some level of Facebook integration, a feature that would be released by the end of third quarter. However, the VPPA (Video Privacy Protection Act) discourages the company from launching the Facebook integration in the US. Instead, the company plans to launch the upcoming service in Canada and Latin America. “Under the VPPA, it is ambiguous when and how a user can give permission for his or her video viewing data to be shared.” The company also stated that a group of lawmakers has introduced a bill (HR2471) to clarify the law.

With the advent of customer dissatisfaction, it is unlikely for Netflix to maintain its stellar growth for the next quarter.  However, that is not going to keep them in expanding overseas and gaining new customers.