Netflix reduced its guidance for fourth-quarter revenue and subscribers on Monday, noting that the economic climate may be taking its toll on its movie rental business.
Shares of Netflix plummeted 13 percent in intraday trading, to as low as $25.19 per share.
In sizing up the fourth quarter, which began this month, Netflix is forecasting weaker than anticipated results. The number of subscribers is expected to be in the 8.95 million to 9.25 million range at the end of the year, compared with the company's earlier forecast of 9.1 million to 9.7 million.
Revenue, as a result, is expected to come in at a lower range, between $353 million and $359 million, compared to its earlier forecast of $357 million to $367 million. Net income, however, is expected to remain unchanged from the company's previous forecast of $18 million to $23 million for the fourth quarter.
Meanwhile, Netflix is preparing to report the financial results of its third quarter on October 20.
For the quarter ended on September 30, the number of subscribers fell to 8.672 million, compared with the company's earlier projections of 8.675 million to 8.875 million subscribers.
"Net subscriber growth in July was in line with expectations, but August was unusually weak," Barry McCarthy, Netflix's chief financial officer, said in a statement. "In September, the business regained momentum, with results slightly below original expectations, likely due to the economic climate."
The company's third-quarter revenues, however, are expected to remain within the range of its previous guidance of $343 million to $348 million--excluding the one-time $6.5 million credit it issued to subscribers after a service interruption in August.
With little fanfare, Netflix previewed a feature many Mac users have wanted to see for quite some time.
A little tidbit tucked away at the bottom of a blog entry posted in the wee hours of the morning proclaims that the movie rental company will make its "Watch now" service work on Macs by the end of this year.
Separately, the company announced that it has forged a deal with Starz that adds 2,500 movies and TV shows to its streaming library.
Netflix still has a long way to go before its instant viewing library can compare with its DVD rental library (of 132 movies in my personal Netflix queue, only 21 are available for instant viewing). The relatively small number of videos available for streaming have limited the "Watch now" feature's usefulness for some time (not to mention that of the Roku player). But the added titles and forthcoming Mac compatibility does bring Netflix one step closer to being truly competitive with the iTunes Store for video rentals.
Now to get a few more deals made, and the streaming service working with Firefox.
The Netflix Player by Roku
(Credit: CNET Networks)It's been known for a while that Netflix and Roku's four-month-old relationship isn't exactly a monogamous one. But it looks like Roku is hoping to play the video-streaming field even more than we initially thought.
Roku makes the $100 Netflix Player, which enables customers to stream movies from the Netflix site to their TVs. It's a product that could be a hit, if only Netflix could secure partnerships with more of the major movie houses and seriously beef up its "Watch it Now" library.
But Roku isn't waiting around for Netflix to make those deals.
CEO Anthony Wood told an audience Wednesday at the Streaming Media West conference in San Jose, Calif., that his company is focused on enabling its set-top box to stream video from any content provider, according to Wired.com.
"We're opening up the platform to anyone who wants to put their video service on this box," Wired cites Wood as saying. "We're going to release the software developer kit, so anyone can publish any channel, and users can access Web content on their TVs."
Will Netflix feel jilted by the move? Woods says no, that both companies intended to work with others all along.
"They made a small investment in us...and they knew from the beginning that we were interested in working with other (content providers), just like they're interested in partnering with other boxes," he said.
For its part, Netflix announced deals Monday with CBS and the Disney Channel that will allow the movie rental service to stream episodes from current seasons of shows. In July, Microsoft said it would allow Xbox 360 owners with Netflix accounts to stream "Watch Now" movies and TV shows through their game console, without any extra hardware or software.
So who's next, I wonder? Hulu? YouTube? Amazon? I guess Roku figures if there are lots of fish in the sea, why not swim with them all?
Netflix has traced the causes of a lengthy system outage this month that prevented the online movie rental service from shipping for several days to a hardware glitch.
The good news for the company is that it received lots of help from vendors to determine that the cause of the outage, which hobbled the company's ability to ship DVDs from August 11 to August 15, was a "key faulty hardware component." Steve Swasey, a Netflix spokesman, said the company's "strongest aspiration is to safeguard this from ever happening again."
The bad news for the company is that Netflix can't yet prevent these system outages. While a piece of hardware, about which Netflix declined to provide details, was the cause of the latest glitch, it was not responsible for the system crash back in March, Swasey confirmed.
In that earlier case, a malfunction knocked out the company's Web site, as well as its logistics and delivery systems, for 12 hours, the company then said. In both cases, Netflix was unable to ship movies "to a large number of Netflix customers."
Two major meltdowns in 2008 raises serious questions about the soundness of Netflix's system. Tony Wible, an analyst at Citigroup, estimated that Netflix lost $1.8 million to $3.6 million for each of the days it was down. The 15 percent credit Netflix is providing to affected customers will reduce the company's third-quarter revenue by $6 million, according to Michael Pachter, an analyst at Wedbush Morgan Securities.
As more and more competitors jump into Web video rental, annoying system blackouts could become more of a liability for Netflix.
In both outages, Swasey said many customers hardly noticed the delays. Many users who were expecting packages weren't put out very much by waiting a day or two extra for their films. Customers never lost money or personal information, and by most anecdotal accounts, the service remains extremely popular with users.
At the root of the problem is the fact that Netflix is quite different from most e-commerce companies. It relies on the Internet, the U.S. Postal Service, and a groundbreaking fulfillment operation that combines software, hardware, and plain old elbow grease to ship those little red packages.
Netflix has won accolades for using technology to wrest market share away from big brick-and-mortar video renters, such as Blockbuster. The company has amassed 8.4 million customers and ships more than 2 million movies per day.
But perhaps now is the time that Netflix would do well to invest in a major system upgrade. If Netflix customers continue to see delays, it could undermine the company's credibility. Does Netflix really want users to consider Blockbuster's in-store kiosks? I don't think so.
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