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Chip cutter

16 October 2015 By Jennifer Saba

Netflix’s card swipe may not connect. Plastic purveyors are hitting back after the video-streaming service on Wednesday blamed new chip-enabled credit cards for its subpar third-quarter subscriber growth. Netflix’s reason sounds flimsy. More worrying, companies using spurious-sounding ways to rationalize problems sometimes have bigger concerns.

Netflix missed by a hefty 400,000 its own third-quarter target of adding 1.2 million U.S. customers in the three months to September. Part of the reason, explained finance chief David Wells, was that some credit-card companies change one or more of the account number, the expiry date or the security code when they send out plastic with the updated technology. Often that means people have to manually re-enter their information. Not doing so, said Netflix executives, caused accounts to become inactive in what they described as “involuntary” turnover.

That would hold water if other subscription-based industries were making similar complaints. Spotify, the streaming music service with 20 million paying customers, said it has not been affected, Reuters reported. It may simply be that a lot of people who had been paying for Netflix no longer use the service so did not bother to update their details.

Netflix is by no means alone in citing outside forces ruining well-laid plans. Last year Volkswagen and McDonald’s pointed the finger at unrest in Ukraine. Elon Musk lamented that Tesla Motors missed its delivery targets in 2014’s fourth quarter in part because customers were on vacation – and because the weather was bad. And last week Cosi pinned a 4.5 percent drop in September sales on the pope’s visit to the United States.

Sometimes, they turn out to be good reasons – but not always. Tesla has reduced its delivery forecasts a few times this year, raising concerns of production and other issues. And McDonald’s has a broader problem of falling sales.

Netflix’s numbers may end up being just a quarterly blip. It’s still on track to add 6 million members in the United States this year. Last fall it missed its subscriber forecast too, citing price increases, before recovering. Yet more streaming-video competitors crowd the scene, including HBO Go and Showtime. Another quarter of disappointing member growth will raise fears they, not credit cards, are chipping away at Netflix’s business.


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