Netflix is Pessimistic; Projects Steep Losses in 2012

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.