Netflix heads into showdown with slowing subscriber growth

Netflix’s subscriber growth is bogging down even before leading video streaming service confronts high-powered threats from Apple and Walt Disney Co. latest sign of challenges company is facing emerged Wednesday with release of its third-quarter results. numbers provided furr evidence that Netflix’s salad days may be over, particularly in U.S., where most households that want its 12-year-old streaming service already have it.

Netflix added 6.8 million subscribers worldwide from July through September, below 7 million customers forecast by Los Gatos, California, company. Just 520,000 of those subscribers were picked up in U.S., below 800,000 that manment anticipated. shortfall came after Netflix lost 123,000 subscribers in U.S. during April-June period, marking its first contraction in eight years.

latest miss on U.S. subscriber growth “spells trouble for company ahead of heightened competition,” said eMarketer analyst Eric Haggstrom. “ fourth quarter represents a completely new ballgame for Netflix.”

Uncertainty about Netflix’s future growth is main reason company’s stock had dropped by about 30% below its peak price of $423.21 reached 16 months ago. Netflix’s shares surged 10% in extended trading Wednesday, apparently because some investors had been bracing for an even bigger letdown in third quarter.

Netflix said it expects to add ar 7.6 million worldwide subscribers during final three months of year, down from 8.8 million during same period last year in an ackwledgment of fiercer competition.

“ launch of se new services will be isy,” Netflix advised in its third-quarter letter to shareholders. “re may be some modest headwind to our near-term growth, and we have tried to factor that into our guidance.”

big question w is wher some of Netflix’s existing subscribers will decide to cancel its service and defect to cheaper alternatives that Apple and Disney will launch within next month.

Apple is charging only $5 per month for its service, set for a v. 1 debut, while Disney is selling a service featuring its vast library of treasured films and TV shows for just $7 per month beginning v. 12. Netflix’s most popular plan in U.S. costs $13 per month.

Netflix is counting on unique lineup of award-winning TV shows and movies that it has amassed since expanding into original programming six years ago to help it retain its competitive edge and attract more subscribers.

It has taken advant of its head start in video streaming to track viewing interests of 158 million subscribers around world, giving it valuable insights into kind of programming that is most likely to appeal to wide swaths of its audience.

That kwledge, in ory, will help Netflix and choose which TV shows and movies to back in future as it bids for programming against likes of Apple, Disney and existing rivals such as Amazon and AT&T’s HBO.

Even if Netflix keeps picking winners, some budget-conscious subscribers may be tempted to abandon its service and be content with entertainment options being dangling by Apple and Disney.

Netflix CEO Reed Hastings ackwledged Wednesday that a U.S. price increase imposed earlier this year is causing some current subscribers to cancel service and perhaps causing some prospective customers to shy away.

“re’s a little more sensitivity, we are starting to see a little touch of that,” Hastings said during a discussion about third quarter. “What we have to do is just really focus on service quality, make us must-have.”

Apple is trying to make its new streaming service even more tempting by offering it for a year to anyone who buys an iPhone, iPad or Mac computer. And Disney already is heavily promoting on Twitter its forthcoming service by highlighting that it will feature classic films such as “Sw White and Seven Dwarfs” and “ Lion King.”

Wedbush Securities analyst Daniel Ives said he is expecting Netflix to lose some of its appeals. He thinks company could lose about 24 million subscribers, or about 15% of its customers, during next 18 months.

As more competitors take aim at Netflix, some of m are also pulling ir programming from service. Disney is yanking its films from Netflix beginning next year. Beloved TV series “ Office” and “Friends’ will disappear from service in 2020 and 2021 in separate decisions made by NBC and AT&T.

losses of those popular shows may hurt Netflix even more than competing streaming services from Apple and Disney, said Michael Pachter, ar Wedbush Securities analyst.

“Netflix is going to lose 50% of its most-viewed hours during next two years,” Pachter said. “As that starts to happen, subscribers are going to start to tice and some may start looking elsewhere.”

Netflix has ar problem: It has been borrowing billions of dollars to pay for most of its programming. With its debt load already standing at $12 billion and still likely to climb, Netflix probably can’t afford to cut its prices without risking bankruptcy, Pachter said.