Subscriber growth for Netflix in the U.S. is disappointing

Introduction of chip-based credit cards cut off customers as quarterly earnings fall

SAN FRANCISCO— Binging on Netflix may be losing some of its appeal in the U.S., even as the addiction rapidly spreads to other parts of the world.

The Internet video service added 3.62 million subscribers during the three months ended September, it announced Wednesday as part of its third-quarter earnings. That’s slightly more than the company had predicted.

But Netflix didn’t gain as many U.S. subscribers in the latest quarter as management anticipated, a shortfall that it blamed on an unusually large number of accounts cancelled because the company couldn’t charge their credit cards. The company believes the trouble is tied to a large number of new credit-card account numbers banks are issuing as they adopt card technology based on computer chips instead of magnetic stripes.

In the third quarter, Netflix gained just 880,000 subscribers in the U.S., below the 1.15 million customers that the company had predicted. It was also fewer than the 980,000 U.S. subscribers it had added this time last year. Netflix has picked up 16 million more subscribers during the past year alone, leaving the service with 69 million worldwide customers as of September.

Disappointing growth in the U.S. ap- peared to raise fears that Netflix may be having trouble attracting more subscribers in its biggest market. It’s facing tougher Internet-video competition from Amazon.com, Hulu and an online-only application from pay-TV provider HBO.

“We’re all racing to fulfil consumer desires,” Netflix CEO Reed Hastings wrote in a letter accompanying the results.

Netflix’s stock shed $8.23, or 7.5 per cent, to $102 in extended trading after the numbers came out. Even with that drop, the shares have still more than doubled this year.

Nearly two-thirds of Netflix’s subscribers, 43 million accounts, are in the U.S. But the streaming service is turning into a global phenomenon; Netflix is pushing to offer its service in 200 countries by the end of next year.

Netflix is available in about 80 countries, meaning it will have to launch its service in an average of about eight more countries each month to meet its deadline. The service will start streaming in Spain, Italy and Portugal before the end of this year and go into South Korea, Hong Kong, Taiwan and Singapore early next year.

Many of the countries located in Asia and Africa are likely to be more challenging to navigate than the mostly European and Latin American countries that Netflix has already entered.

The international push is costing Netflix hundreds of millions of dollars, although it has remained profitable. Netflix earned $29.4 million in its latest quarter, a 50 per cent drop from the same time last year.

“We’re all racing to fulfil consumer desires.” REED HASTINGS NETFLIX CEO