Netflix earnings: The company says price hikes crushed its subscriber growth.

Netflix Says a $1 Price Increase Crushed Its Subscriber Growth

Netflix Says a $1 Price Increase Crushed Its Subscriber Growth

Moneybox
A blog about business and economics.
Oct. 15 2014 6:46 PM

Netflix Says a $1 Price Increase Crushed Its Subscriber Growth

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The company had a no-good, very bad day.

Photo by Justin Sullivan/Getty Images

Rough day for Netflix. The company’s stock is down 25 percent after hours following a lackluster earnings report that revealed the streaming service added fewer subscribers last quarter than it had expected. This comes just after rival HBO announced it would finally release a standalone, Web-only version of HBO Go that could potentially compete directly on Netflix’s turf.

Netflix tacked on about 3 million new users across the globe over the past three months, undershooting its forecast of 3.7 million. But perhaps more worrisome, it’s growth in the U.S. fell year over year, reaching just 1 million net new sign-ups, down from 1.3 million in the third quarter of 2013. The company is blaming its $1 price hike in May, which raised the cost of a subscription to $8.99 per month. “As best we can tell, the primary cause is the slightly higher prices we now have compared to a year ago," management said in its letter to shareholders. "Slightly higher prices result in slightly less growth, other things being equal, and this is manifested more clearly in higher adoption markets such as the US.”  

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"Slightly less growth" is a bit of an understatement. The slowdown suggests that streaming customers might be more cost-conscious than it previously seemed. When prices first went up in the spring, subscription growth didn't seem to take a hit. But now, the company thinks that may have been due to "the large positive reception to Season Two of Orange Is the New Black."

But maybe that's the silver lining here: If it just manages to come up with a few more decent programs, investors might buck up.

Jordan Weissmann is Slate’s senior business and economics correspondent.