Netflix Earnings Plunge -- As Does Its Stock

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Netflix, which continues to show ambivalence in support of its original DVD-by-mail operation, reported an 88-percent drop in third-quarter net income Tuesday, triggering another sell-off of shares by investors. At mid-morning Netflix shares were down nearly 15 percent to 58.55 on the Nasdaq. The company added 1.7 million subscriptions overall in the quarter, including 1.16 million for its streaming-video service. But its churn rate -- the number of new subscribers compared to the number of departing ones -- turned out to be higher than expected. It lost 634,000 DVD-by-mail subscribers. At the beginning of the year, Netflix chief Reed Hastings had set a goal to add 7 million streaming subscribers by year's end. But through the first nine months, it has added 3.43 million. In a conference call with analysts on Tuesday, Hastings said that he will try to make direct licensing deals with Disney, Universal, and Sony when those studios' current agreements expire within the next 2-3 years. Not being able to offer recent movies from those studios for its streaming service following the expiration of its deal with Starz has not appreciably harmed the service, CFO David Wells maintained. He said that even in the company's DVD-by-mail business, only about a third of its shipments represent new releases. I think subscribers just want something good to watch and are less engaged in the freshness of the content, he said.


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