Sign in with
Sign up | Sign in

Netflix is Pessimistic; Projects Steep Losses in 2012

By - Source: Business Insider | B 40 comments

A few missteps leading into a new year.

The immense fiasco that is Netflix's second half of 2011 has finally reached its inevitable outcome: the company predicts that it will fail to turn a profit in 2012. That startling admission was sneaked into the prospectus for the stocks part of Netflix's new stocks and convertible bonds offering, buried at the bottom of the summary statement under an inscrutable layer of obscure business-speak:

"Consistent with our Q4 guidance, our domestic streaming and DVD gross cancellations continued to steadily decline in October and the first half of November, while gross additions of new streaming subscribers remained strong," the concluding paragraph reads. "As a result, consistent with our prior guidance, we continue to expect our domestic streaming net additions to be about flat for November as a whole and strongly positive for December. We expect that consolidated quarterly revenue will be relatively flat until we can achieve positive net subscriber additions. As a result of the relatively flat consolidated revenues and previously announced increased investment in our International segment, we expect to incur consolidated net losses for the year ending December 31, 2012."

This is part of a larger bleak portrait painted by the prospectus, which outright states that investment in Netflix offers a high degree of risk. "We cannot assure you that our domestic streaming cancellations will continue to decline or that gross new additions will remain strong. If we are unable to repair the damage to our brand and reverse negative subscriber growth, our business, results of operations, including cash flows, and financial condition will continue to be adversely affected."

Simply put, after a period of crisis that began with an unpopular price hike and continued with a terrible-sounding (and quickly abandoned) rebranding, the streaming and DVD rental service continues to bleed customers, and there is no guarantee the problem isn't fatal. Though the company's stock price once peaked at $300.00, it now sits around $75.00.

Netflix is pinning hopes for future success on original content, beginning with a deal that will bring the classic cult TV series Arrested Development back for a fourth season in 2012. The stocks and convertible bonds offering is intended to raise $400 million in funding for such endeavors. Though there's no way to assure wary customers that other original content will be as good as Arrested Development, at least those productions will make up for the noticeable decline in the Netflix streaming library that now forces even fans of shows like Babylon 5 to watch on DVD. Just as long as the block of original programming shows isn't given some ridiculous name, like TVster.

Display 40 Comments.
This thread is closed for comments
Top Comments
  • 17 Hide
    keyanf , November 25, 2011 6:29 PM
    Uberragen21I've got an idea, get a better movie and tv selection and your online service won't suck as much.


    I've got a solution for you. Learn to run a business.

    Netflix didn't increase prices for the lulz, they increased them because their costs went up. Netflix initially licensed streaming content when networks thought it was worthless and took whatever they could get on it. The licenses expired and they had to renegotiate them, obviously for more because the license is worth more.
  • 10 Hide
    zoemayne , November 25, 2011 6:47 PM
    I dont know why people are so mad at netflix. They had to increase their prices hollywood(or whatever you wanna call em) increased their price after the contract they had was up. Its like their bank of america... blame hollywood....
Other Comments
  • 7 Hide
    de5_Roy , November 25, 2011 6:14 PM
    after screwing with customers like the way netflix did, loss doesn't seem surprising.
  • 5 Hide
    bigpoppastuke , November 25, 2011 6:15 PM
    I have a fix. Lower your prices back to the way they were you greedy bastards. You're killing your own company. Swallow your pride and admit you were wrong!
  • 8 Hide
    Uberragen21 , November 25, 2011 6:25 PM
    I've got an idea, get a better movie and tv selection and your online service won't suck as much.
  • 17 Hide
    keyanf , November 25, 2011 6:29 PM
    Uberragen21I've got an idea, get a better movie and tv selection and your online service won't suck as much.


    I've got a solution for you. Learn to run a business.

    Netflix didn't increase prices for the lulz, they increased them because their costs went up. Netflix initially licensed streaming content when networks thought it was worthless and took whatever they could get on it. The licenses expired and they had to renegotiate them, obviously for more because the license is worth more.
  • 8 Hide
    Thunderfox , November 25, 2011 6:29 PM
    When one considers the prices of TV service, or video stores, is Netflix all that expensive even now? Most of the reason people are complaining is that it was so low in the first place. What if they had had these prices to begin with?
  • 3 Hide
    keyanf , November 25, 2011 6:29 PM
    Err, quoted wrong guy, that's to bigpoppastuke.
  • -5 Hide
    sykozis , November 25, 2011 6:46 PM
    ThunderfoxWhen one considers the prices of TV service, or video stores, is Netflix all that expensive even now? Most of the reason people are complaining is that it was so low in the first place. What if they had had these prices to begin with?

    Considering the limited selection for streaming, and the extended wait time on new releases. The current price point for either service on it's own is excessive. Honestly, Netflix cost me more per year than renting from Blockbuster does.
  • 10 Hide
    zoemayne , November 25, 2011 6:47 PM
    I dont know why people are so mad at netflix. They had to increase their prices hollywood(or whatever you wanna call em) increased their price after the contract they had was up. Its like their bank of america... blame hollywood....
  • 8 Hide
    dalethepcman , November 25, 2011 7:27 PM
    Netflix biggest problem, was when it divided its streaming and rental services. Customers were expecting to get more, because they were paying for more. Streaming previously cost $2, now it costs $8. With that 8$ cost, it made Netflix a less cost effective streaming source, and with no new content its previous streaming users were bored with what Netflix had to offer. With competing services like Hulu having better TV content and being free, Amazon prime having equal content and costing $80/year with many other perks, and now blockbuster directly competing with Netflix in dvd by mail and streaming for the same prices, its no wonder they lost tons of subscribers.
  • 5 Hide
    Energy96 , November 25, 2011 7:49 PM
    This failure shouldn't be a surprise to anyone. Regardless of the "price hike" and service split fiasco the whole thing was implemented and marketed extremely poorly. On top of that comments by CEO and press people made the situation even worse with their obvious disdain for their own customers.

    They deserve to fail not because they tried to raise prices but because the entire thing was done in such a poor way that you can't help but piss people off. Whatever person's idea it was to implement these things in the fashion that they did should get out of business and stay out of it because they have no clue and will probably cripple the next company they go to work for as well.

    As a side note the content of their streaming service was always pretty lackluster. Most of the content was either old movies or B-rated and TV shows. Most of the good content they had was from STARZ, now that they jumped ship and signed on with Blockbuster most of what is left is trash and not even worth paying for. The DVD/Blueray service was the only part that actually had a good selection of newer movies and even that you had to wait a month to watch new releases after everyone else had them. Those things were acceptable at the old price, but under the new structure it is hard to justify, especially now that STARZ content is history.
  • 6 Hide
    Anonymous , November 25, 2011 7:51 PM
    Netflix's decline was inevitable. They got in a market where they have no control over the product, they can't control who gets to see it, when its available and whats available.
  • 7 Hide
    kinggraves , November 25, 2011 8:04 PM
    I agree that a price increase was in fact necessary, but the problem lies in the way it was handled. I don't need an MBA to know that customers do not like a sudden 60 percent increase in prices followed by a rebranding that overcomplicates a service. These were horrible business decisions, and Reed Hastings does not deserve a dime this year.

    You shouldn't be so quick to shove Netflix under the bus though. None of their competing services would be around were it not for them. Blockbuster would still be charging you more than the price of a new DVD for a late fee and no one would be questioning why they pay so much and watch so little on cable. There's stormy seas ahead for them between renegotiating contracts with studios that are becoming hostile to the devaluing of their content and ISPs becoming hostile over the bandwidth being used by the service.
  • 3 Hide
    Thunderfox , November 25, 2011 8:14 PM
    kinggraves There's stormy seas ahead for them between renegotiating contracts with studios that are becoming hostile to the devaluing of their content and ISPs becoming hostile over the bandwidth being used by the service.


    Maybe we'll get a better broadband infrastructure out of it...

    nah...
  • 3 Hide
    rykoshet , November 25, 2011 8:32 PM
    I love Netflix. If they go down, I will have no choice but to go back to piracy.

    The new generation doesn't have a TV and doesn't want to pay $100/mo for crappy cable. We want instant access to whatever we want (within reason). If Netflix goes down, megavideo will prosper.
  • -2 Hide
    ikyung , November 25, 2011 9:09 PM
    Should have hired a better marketing team..
  • -3 Hide
    JOSHSKORN , November 25, 2011 10:11 PM
    zoemayneI dont know why people are so mad at netflix. They had to increase their prices hollywood(or whatever you wanna call em) increased their price after the contract they had was up. Its like their bank of america... blame hollywood....

    Blame property values increasing.
  • 1 Hide
    dark_knight33 , November 26, 2011 1:51 AM
    It's all part of a larger conspiracy to kill Netflix. Big media/telcos don't want Netflix becoming another itunes/steam/etc. Media companies punish netflix by forcing them to delay releases for streaming & dvd, Why? So companies like Comcast & AT&T can sell you with *competing* on-demand services. Comcast & AT&T cry bandwidth exaflood and throttle/cap your service further reducing the appeal of a streaming services as a cable replacement. I feel sorry for Netflix, but they handled this poorly. How could they *not* have known licensing prices would rocket up when the deals expired? They should have gradually increased prices year over year, then used the extra cash to absorb the current increase in licensing prices, and continued the gentle price increases until the business was sustainable again. Instead, they kept the prices low until the last minute, and nobody wants to accept that their supplies are bilking them for every dime now.
  • -1 Hide
    danwat1234 , November 26, 2011 2:23 AM
    Who needs Netflix? Just download all the movies at high quality off of a good bittorrent website, in which people can comment and rate torrents. It's really quite simple.
  • -5 Hide
    airborne11b , November 26, 2011 2:51 AM
    I replaced cable service with netflix and couldn't be happier, even with the price increase. Great shows like Walking dead to stream any time you want, and 5-6 blu-ray disks a week / 21-24 blu ray movies per month for 29.99... and people have the audacity to complain about netflix prices? lol, what a bunch of cheapskates.

    Netflix is great. If you can't afford it, go back to watching PBS with your CRT bunny-ear TV from 1987.
  • 1 Hide
    Evil_Geddy_Lee , November 26, 2011 3:20 AM
    The price hike and the division between the mailing service and online service is largely due to meddling by comcast, do a google search and read about it.
Display more comments
Tom’s guide in the world
  • Germany
  • France
  • Italy
  • Ireland
  • UK
Follow Tom’s guide
Subscribe to our newsletter