Netflix anticipates huge losses in coming months

Friday, April 20th, 2012 By

Netflix

After a torrid end of last year, Netflix is anticipating further losses. Photo Credit: Taro the Shiba Inu/Wikimedia Commons/CC-BY

Netflix has been getting clobbered in the past few years, after prices were hiked, programs disappeared and subscribers fled. The company’s woes are projected to increase, as the company is anticipated further losses.

Rough going for mail based video rentals

Several years ago, Netflix was a rock star in the entertainment business that could do no wrong. Customers loved the mail-order DVD rental and the streaming movies and the market loved the stocks. However, the honeymoon came crashing down last year, after Netflix plotted to split its mail rental and streaming services, then canceled it, raised prices and then started relegating many shows that used to be streaming to DVD-only.

Customers fled and the company’s stock price plummeted after reaching an all-time-high in summer 2011, according to CNN. The company is also projecting to take a further clobbering, as a recent statement from Netflix projected a further loss of 27 cents per share.

Licensing fees are killer

One of the biggest thorns in the side of Netflix is agreements over licenses from production companies. Losing the agreement with Starz recently caused the company to stop offering a good number of movies, including titles like “Toy Story 3,” streaming online.

According to Reuters, Netflix has experienced a huge increase in the cost of getting the content that it shows to viewers online, as more studios and production companies are demanding higher prices for allowing their content to stream. Competitors such as Amazon and Hulu are making more attractive offers. The cost of licensing content has risen 55 percent to $1.8 billion for Netflix.

However, the company is banking on using original programming to bring some subscribers back. The first original series, “Lillehammer,” was launched recently and next up on Netflix’s calendar is a brand-new season of the resurrected sketch comedy series “Arrested Development” and “House of Cards,” a new series starring Kevin Spacey. Netflix also opened up shop in the United Kingdom, though there is stiff competition there as well.

Big hill to climb

Netflix has fallen a long way from the previous high market price of more than $300 per share, falling to $62.37 last November. Currently, Netflix is trading around $106.

The loss of customers in the last quarter of calendar 2011 was also substantial. All told, according to MarketWatch, 2.76 million people canceled their DVD subscription and a further 1.5 to 1.8 million are thought to have left in the first quarter of this year. However, according to Reuters, Netflix does expect to add another 1.9 million subscribers to its streaming service.

Sources

CNN

Reuters

MarketWatch

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