Media

Updated: Netflix expects subscriber growth to slow in Q3

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[Update: Added additional information from the company’s quarterly conference call.]

Video streaming site Netflix’s recent rate hike has slowed the site’s growth substantially.

The site expects to add 700,000 new domestic subscribers — at the most — in the third quarter this year, which is down from the 1.8 million new domestic subscribers added in the third quarter last year, according to the most recent Netflix earnings report.

The company said it expects subscriptions to slow thanks to a price change that caused subscription fees for users with both DVD and streaming subscriptions to rise nearly 60 percent. The company recently split its monthly streaming and DVD subscriptions and charges $7.99 for monthly access to the site’s streaming content and an additional $7.99 for its monthly DVD rental. The site used to charge $9.99 each month for access to both.

“So far from what we’ve seen, we’ve been very pleased at the effects and we’re feeling great about the decision, as tough as it is,” Netflix CEO Reed Hastings said. “It’s gonna allow us to have fantastic streaming content moving forward.”

The change in subscription will result in lower revenue growth and higher churn in the third quarter this year, which means more subscribers will be leaving, Hastings said. That means its new guidance is 61 percent lower than the number of new subscribers the company would have brought in if it held steady.

The company expects to have between 14.6 million and 15.7 million domestic DVD subscribers and between 21.6 million and 23.3 million domestic streaming subscribers by the end of the third quarter this year. The company ended the second quarter this year with around 24.6 million domestic subscribers and 25.6 million global subscribers.

Netflix made $68 million in the second quarter this year off $789 million in revenue. That’s up 57 percent from $44 million in income in the second quarter of 2010, and up 52 percent from $520 million in revenue in the second quarter of 2010.

Netflix added new subscribers at a blistering pace in 2010 when compared to 2009, but has since slowed slightly. Netflix added 1.8 million new domestic subscribers in the second quarter this year, up 75 percent from the 1.03 million subscribers in the second quarter of 2010, according to its most recent quarterly earnings report. The 1.03 million domestic subscribers added in the second quarter of 2010 was 255 percent higher than the 300,000 subscribers added in the second quarter of 2009.

The company’s guidance for the third quarter this year is pretty tame. It expects to make between $95 million and $120 million in income off between $780 million and $805 million in revenue from its domestic operations. It expects to end the third quarter with between 24.6 and 25.3 million new domestic subscribers, which is not far off from its most recent operating quarter.

Netflix expects to lose between $27.5 million and $22.5 million in the third quarter this year on its international operations, which have grown slowly in the past several quarters. The company expects to have between 1.2 million and 1.5 million subscribers internationally, compared to the roughly 1 million subscribers it had at the end of the second quarter this year.