Are You Too Poor for Netflix?

Netflix (Nasdaq: NFLX  ) has become the latest dot-com implosion during this challenging earnings season.

Tuesday night's report wasn't horrendous in of itself. Revenue climbed just 10% to $905 million, but that was in line with Wall Street's expectations. Profitability fell sharply, but the $0.13 a share that the premium video-service provider recorded on the bottom line was actually well ahead of the $0.04 analysts were targeting.

The stock's still getting hammered, fueled by the disappointing subscriber count of 25.1 million domestic streaming members. That is on the low end of Netflix's guidance. However, there was an interesting nugget in the company's letter to shareholders .

"Our voluntary churn is generally the lowest it has ever been. In contrast, involuntary churn has been increasing as we grow more mainstream and attract more lower-income households."

Voluntary churn? Involuntary churn? In a nutshell, Netflix is saying that it's down to appealing to poorer households in its push grow its reach, and even the seemingly low price of $7.99 a month is too much to pay for the company's streaming smorgasbord.

Providing a little more color to the situation, Netflix is the one that has to close out some of these accounts after being unable to collect from their debit or credit cards.

Netflix has always seemed to be a good value. Redbox parent Coinstar (Nasdaq: CSTR  ) even boosted its nightly Redbox kiosk rental rate by 20% to $1.20 a year ago, and seekers of cheap DVD rentals didn't seem to flinch.

Maybe this is why Netflix has been pushing hard into international markets, even as it eats away at its overall profitability. There are more than 100 million households in this country, but the addressable market may be far smaller than that if Netflix is running into credit risks while it's servicing less than a quarter of the country's homes.

Things used to be easier when Netflix gave investors the actual churn metric. Now we're down to vague comparisons of "voluntary" versus "involuntary" churn without any real numbers.

Either way, Netflix investors had better hope that either the international expansion goes well or that the company finds a way to drum up more than $7.99 a month out of the domestic subscribers who do have chargeable plastic on file. The soft economy could explain some of this deadbeat streaming, but Netflix may have a bigger problem than that on its hands.

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