Netflix Subscription Slowdown Projected: SG Cowen

Yesterday SG Cowen & Co released a Morning Call that cast a shadow over Netflix.

They expect Netflix to report solid Q4 results in 2004, but believe it’s unlikely to achieve its goal of 4m subscriptions in 2005, for two reasons.

Blockbuster has lowered the price of their online postal 3-DVD service in the US from $17.49/month to $14.99/month. Netflix have stated that they will maintain their pricing at $17.99.

SG Cowen has been carrying out a survey of DVD postal rental services in four US markets. Their results indicate that Blockbuster service has improved, while heavy users of the Netflix service are getting a reduced service.

SG Cowen actually tied some numbers to Blockbuster’s improvement. The levels of movie availability were at 20-25% in October 2004, improving to 62-84% in November and reaching 84-94% in December.

Over this time they found that Netflix is cutting back.

Their belief is that Netflix is reducing the number of new releases that they are purchasing, which is impacting the availability of the titles to their customers. This in turn brings further cost savings for Netflix as they are sending out less DVD’s, thus reducing their shipping costs for heavy users of the service.

If SG Cowen are correct, it looks like the road ahead for Netflix and its high usage subscribers could be bumpy.

SG Cowen