NETFLIX RESULTS: A ROUND-UP (DH, MW, BLOOM, LAT, VAR, PC, NYT, WSJ, TC, NYT)

By Nancy Tartaglione-Moore

UPDATE: Netflix shares plunged Tuesday to a new 18-month low, per MarketWatch which says the stock fell nearly 35% to close at $77.37.

EARLIER:

On Monday, Netflix reported a decline of 810,000 subscribers while lackluster projections for the rest of 2011 also contributed to a 27% drop in after-hours trading, sending the stock to $85. It had opened the day at $119.37.

Today, says Deadline, Netflix is in for a brutal morning.

Per Deadline, Netflix stock was down 35% in pre-market trading from its $118.84 Monday close. At the same time, some influential Wall Street analysts are telling investors it's time to dump the stock.

(MarketWatch later reported that the stock had plunged more than 37% in morning trading.)

Investors are trying to gauge the extent of the fallout from the company's controversial price hike as well as the aborted plan to put DVD customers on Qwikster, Bloomberg noted.

On Monday, CEO Reed Hastings used an earnings call to address subscriber losses and to talk up new content prospects. Of Qwikster, he said: "In hindsight, it's hard to justify."

Third-quarter revenue, however, was up an impressive 49% to $822 million, while net income jumped 63% to $62 million, The Los Angeles Times said.

Fourth-quarter profit will be $19 million to $37 million, or 36 cents to 70 cents a share, on revenue of as much as $875 million, the company said. Analysts were projecting profit of $1.10 a share on sales of $919 million, according to Bloomberg data. The company earned $47.1 million, or 87 cents a share, on sales of $595.9 million, a year earlier.

With Netflix' push into the UK and Ireland, Hastings signaled that domestic profits would not be able to cover losses generated by overseas investments in the first quarter of 2012.

"We put a pause on international expansion until we get back to global profitability," Hastings said.

He also put Netflix' hopes on increasing its content holdings.

"It's exciting that we're filling out this content," said Hastings, who also drew direct comparison to spending levels at HBO.

According to Variety, Wedbush Securities analyst Michael Pachter has already pegged Netflix' 2012 content bill at $2 billion, up from just $180 million in 2010.

VAR:

But the content facet of the business won't be without its challenges. For one thing, Hastings declined to comment on reports that Netflix's $1 billion deal with Epix, which grants streaming rights to titles from Paramount, Lionsgate and MGM, may be coming up for renegotiation as soon as next August.

With Epix Netflix faces the prospect of a repeat of its recently dissolved deal with Starz, which delivered Sony and Disney movies deemed critical for putting Netflix on the map. Netflix could have been forced to pay Starz exponentially more than the estimated $30 million it originally paid for the rights, but the two sides failed to come to terms.

However, Hastings repeated his assertion that the Starz movies amounted to only 6% of total hours viewed on Netflix. It's unclear whether Epix would present a bigger problem -- and how big a paycheck would be required to keep the deal intact.

PaidContent:

With streaming representing Netflix's long-term future, how does the DVD mail business look in over the short term? Hastings compared to it AOL's dial-up access business, which is still a cash cow for that company, albeit a steadily diminishing one. There are fewer fixed costs associated with the DVD business, for one thing, as most of the expenses vary due to postage, labor.

Ultimately, the shift from DVD to streaming will not have that much of an impact on how well the content catalog is able generate revenue, Hastings said. "I don't see a shift in the catalog business; People like the depth and breadth of the catalog, whether streaming or DVD," he said. "That's what matters and that's where our focus is."

Meanwhile, The New York Times has an in-depth look at the situation in a story that begins:

NYT:

Reed Hastings was soaking in a hot tub with a friend last month when he shared a secret: his company, Netflix, was about to announce a plan to divide its movie rental service into two - one offering streaming movies over the Internet, the other offering old-fashioned DVDs in the mail.

"That is awful," the friend, who was also a Netflix subscriber, told him under a starry sky in the Bay Area, according to Mr. Hastings. "I don't want to deal with two accounts."

Hastings ignored the warning and has clearly since regretted it. He told The Wall Street Journal: "We made a couple of big mistakes this year. It's up to us to own up to those mistakes and to move forward."

On the Monday call, he said: "Qwikster became the symbol of Netflix not listening," TechCrunch, which has audio of the call here, said.

Hastings told The NYT last week that he had been guilty of overconfidence and of "moving too quickly." But he said he still believed - as do nearly all investors and analysts — that Netflix' future lay not in DVDs but in streaming over the Internet. "We still need to move quickly in streaming," he said.

Hastings also told the paper that Netflix was now trying to slow its decision-making to ensure that there was more room for debate about major changes at the company.

How Netflix came to be so out of touch with its customers is a cautionary tale for other companies that try to transform to new media from old, says The NYT which has more here.

Barton Crockett, media analyst at Lazard Capital, told The New York Post, "Expectations had got too frothy, and we're witnessing a painful reset."

**This article was compiled using reports from Deadline, MarketWatch, Bloomberg, The Los Angeles Times, Variety, PaidContent, The New York Times, The Wall Street Journal, TechCrunch and The New York Post. The original stories can be accessed by clicking on the hyperlinks in the text above.