Netflix Profit Plummets 91%

Higher subscription costs hurt second quarter earnings

By Evann Gastaldo,  Newser Staff

Posted Jul 25, 2012 7:38 AM CDT

(Newser) – Apple isn't the only one who has hit a rough patch—Beleaguered Netflix is also taking a drubbing after posting a 91% drop in net income for the second quarter. Shares responded by dropping almost 15% in after-hours trading yesterday. The company’s decision to separate its DVD-by-mail service from its streaming service, thus increasing the subscription fee for customers who want both, ended up costing it 850,000 DVD-only subscribers in the second quarter in the US. Meanwhile, more than half a million US streaming subscribers came on board.

"Their subscriber gains just weren't impressive," an analyst tells the Wall Street Journal. Though Netflix was once again profitable, with a net income of $6.2 million after losing $4.6 million in the first quarter, a letter to shareholders warns that a number of challenges are ahead—including a return to the red in the fourth quarter. And more bad news: HBO quickly squashed the idea of a partnership that would allow Netflix customers to stream the network’s shows. Netflix CEO Reed Hastings had raised the idea of a partnership in the letter to shareholders, but HBO says no deal is in the works, Reuters reports.

This March 20, 2012 file photo shows Netfilx headquarters in Los Gatos, Calif.
This March 20, 2012 file photo shows Netfilx headquarters in Los Gatos, Calif.   (AP Photo/Paul Sakuma, File)
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