Netflix flops: On the company’s rapid fall

Reed Hastings, CEO of Netflix, has taken a huge financial loss in personal wealth over the past year.

Shares of one-time Wall Street darling Netflix plunged 34 percent in heavy trading yesterday, a day after the battered movie rental company warned of more subscriber defections and mounting costs.

On Monday, Netflix said it would see more cancellations as it grapples with the fallout from a price increase and other unpopular moves, including a failed attempt to split its online and DVD services into two separate companies.

“We believe the [Netflix] model is unsustainable, as the company faces rising costs that it hoped it could pass onto its [subscribers], who appear unwilling to do so,” Janney Capital Markets said in a note to clients. The brokerage cut its rating on the stock to “sell.”

The downward spiral for the shares started in July when the company that shook up Hollywood with its DVD-by-mail service announced a price increase for subscribers who wanted both DVDs and online streaming of movies and television shows.

Netflix — which is trying to recover from the roughest patch in its nearly 15-year history as it emphasizes online streaming of television and movies — forecast a loss for the first quarter of 2012 as it spends more to expand to Europe.

Netflix told investors on that DVD subscriptions would “decline sharply this quarter” but total U.S. subscribers, which includes customers who of its online streaming service, would be “slightly up.”
Netflix has long enjoyed a near-monopoly in the online streaming space but the recent entry of new players Amazon.com and Google’s YouTube could lead to subscribers switching to alternative services.



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