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Netflix Says Price Hike Will Slow Growth

Some disgruntled customers will likely drop the service
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Two weeks after announcing an upcoming 60 percent hike in subscription fees, Netflix is getting ready to face the fallout in the third quarter.

In yesterday’s earnings report for the second quarter, which ended June 30, Netflix posted a healthy revenue of $789 million, up 52 percent from the same quarter last year. The company also said its profit for the quarter was $68 million, up 55 percent. But that profit came before Netflix angered millions of customers nationwide with the recent price hike.

The company predicted disappointing results for the current third quarter, saying that it expects a temporary slowdown in subscriber growth as some customers cancel their subscriptions rather than pay higher prices. After the announcement was made, Netflix stock dropped 10 percent in after-hours trading.

The price change “doesn’t take effect until the very end of the third quarter,” CEO Reed Hastings said yesterday, “so we have to face those subscribers who are upset by the increase this quarter.” He said that he only expects “a few” subscribers to cancel or downgrade service, but “that means less revenue than we otherwise would have had.” Still, he remained optimistic that the company would bounce back in the fourth quarter.

The company also said that it is still in discussions with Starz to renew its distribution agreement but wouldn’t comment on a Bloomberg report that it was in talks to exclusively license content from DreamWorks Animation, which currently has a deal with HBO.