After rocketing up last year, Netflix stocks (NFLX) tumbled almost 19 percent Thursday.
Earlier this year, Netflix CEO Reed Hastings saw his pay double after stock prices tripled. The web-based movie rental company had released set-top devices and partnered with makers of consoles like PS3, Xbox, and Wii to make it easier for customers to stream movies and TV shows to their living rooms. In March, Netflix announced its first exclusive serialized drama, “House of Cards,” starring Kevin Spacey.
Their streaming videos had become so popular that Sandvine reported in May that 22 percent of all North American Internet traffic was from Netflix (by comparison, YouTube videos only accounted for 8 percent).
Everything was looking up for the Los Gatos, Calif., company.
Then they stirred a bee’s nest. In July, Netflix announced that starting Sept. 1, they would be changing their price structure. The net result many subscribers saw was a $6 increase in monthly fees without any improvement in service. The Twittersphere went wild, and Netflix’s Facebook page started filling with comments.
Predictions varied, but Wall Street approved of the change, and Netflix saw shares increase by 3 percent.
That was in July. Since then, an informal poll by Business Insider found that 41 percent of users were considering canceling their membership.
Then, on the day the new price plan took effect, Starz, Netflix’s most valuable source of new movies, surprised everybody by announcing it would be cutting ties with them. Starz content is some of the most popular available to users and accounts for 8 percent of the streaming movies on Netflix. Subscribers saw it as a decline in service and started jumping ship.
On Thursday, Netflix projected a loss of approximately 1 million subscribers this month, lowering expectations for U.S. subscribers for the third quarter by 4 percent.
Though Wall Street had initially embraced the rate hike in July, Thursday’s announcement sent shares down 18.9 percent to $169.25.
While Netflix Inc. still believes the new pricing structure was the right move, the Associated Press reports that Jefferies & Co. analyst Youssef H. Squali said “a combination of the recent price hike, a less favorable competitive environment, and aggressive international expansion raises the risk profile of the stock.”