Netflix Stock Prices Dive Almost 19 Percent After Announcing Loss of 1M Subscribers

By Kenna McHugh 

At the beginning of this year, Netflix’s stock prices tripled. The web-based movie rental company had released top devices and partnered with manufactures of consoles involving PS3, Xbox and Wii. The idea was to make it easier for customers to stream movies and TV shows right into their living rooms. In March, Netflix announced its first drama series, “House of Cards,” starring Kevin Spacey.

All looked bright for the company, but in July, Netflix announced they would be changing their subscriber price structure on September 1, 2011, increasing the monthly fees by $6 without any improvement in service. Speculations were positive and even Wall Street thought the change would do the company good. But that didn’t happen. Last week, their stock prices took a dive of almost 19 percent.

What happened?

On the very same day the company’s new price plan went into effect, one of the company’s most valuable sources of new movies, Starz, bailed out. The service had offered some of the best and most popular content available, accounting for 8 percent of the streaming movies on Netflix.

At the same time subscribers were bailing out as well. Netflix made the announcement that they expect a loss in the order of 1 million subscribers this month, lowering the outlook for U.S. subscribers for the third quarter by 4 percent.

As a result, last Thursday, Netflix shares dived down 18.9 percent to $169.25.

Still, Netflix believes the new pricing structure was the right move. Netflix believes the company will bring in $10 million to $25 million more from its customers during the July-September period than it did during the April-June period.

If you do the math, I don’t see how Netflix can speculate that they will gain from all these major changes. Losing subscribers is not something to take lightly; particularly in such a competitive market.