Netflix, you’ve got some ‘splainin’ to do!

Mon Jul 25, 2011 7:26pm EDT

When Netflix reports second-quarter earnings late on Monday, financial analysts will look to the company to give not only an update on its financials but also some clarity into its future. With an ambitious plan to expand into 43 Latin American countries and a dramatic change to its pricing plans, Netflix has a lot of big changes expected in the second half of the year.

While the company has given some details about these plans in press releases and blog posts, this will be the first time that management publicly faces analyst questions and provides a clear view into how the changes will affect future growth. Here’s what to look for in the management commentary and analyst Q&A, as Netflix CEO Reed Hastings seek to quell investor fears about over-extending itself abroad and customer churn at home.

How fast will Latin America grow?

Netflix hasn’t given an official launch date for its ambitious 43-country Latin America expansion, except to say that it will begin in the second half of this year. But we expect the company to provide more details in management commentary, including initial startup costs related to its great Latin America adventure, as well as some possible forecasts for subscriber numbers by the end of the year.

Most importantly, Hastings will be able to say exactly how big of a market Netflix expects Latin America to be. Also, it can give some content into why it chose 43 countries south of the border, as opposed to say, launching streaming service in more developed markets, like the U.K. or Germany.

How many subscribers will Netflix lose at home?

For a company that historically has been one of the highest-rated in terms of customer satisfaction, Netflix is facing a backlash of epic proportions after a recent pricing change that could raise rates for some subscribers by as much as 60 percent. That’s left many subscribers threatening to quit, if they haven’t already.

But how will the pricing change affect Netflix’s subscriber numbers and churn rate?

Since the change was announced in July, any subscription cancellations won’t show up until Netflix reports third-quarter financials sometime in October. And since subscribers won’t actually be forced to choose until September, Netflix won’t fully be able to break out financial results from its separation of DVD and streaming plans until the fourth quarter.

That said, Netflix no doubt has some expectation of how many users will move to streaming- or DVD-only plans, how many will pay more for both plans and how many will quit altogether. Its forecast for third-quarter subscriber growth and customer churn will be closely watched by analysts looking to create their own financial models.

Are more international markets on the horizon?

Netflix waited nearly a year after its Canadian launch before extending its streaming services into other markets. But after its foray into Canada performed better than originally forecast, Netflix could get even more aggressive about international expansion. Taking Latin America will be a huge undertaking, but it appears that Netflix has no plans to stop there — already there are rumors that the company’s streaming service could launch in the U.K. and Spain in the first half of next year. Along with a financial update on its Latin America plans, we could get a first glimpse of costs related to new markets, as Netflix attempts to lock down streaming content rights for European markets.

DreamWorks movies, more original content on the way?

Netflix is reportedly close to closing a deal that will bring DreamWorks Animation to its streaming service sometime next year, according to reports from Bloomberg and The Hollywood Reporter. That would give Netflix exclusive access to future DreamWorks films in the pay TV window, making Netflix the go-to place for DreamWorks pictures after they’ve appeared in theaters and been sold on DVD. DreamWorks movies are currently only available on HBO during that window, but the pay TV network could back out of its contract early, leaving the opportunity open for Netflix to strike its own streaming deal.

Netflix is also reportedly in discussions with Weeds creator Jenji Kohan to bring its second original series online. Following up on its deal to bring the David Fincher-Kevin Spacey project House of Cards online first instead of going to a cable network like HBO or Showtime, Netflix could add another straight-to-streaming title from Kohan based on the Piper Kerman memoir Orange Is the New Black: My Year In a Women’s Prison. Weeds, which appears on Showtime, is one of the more popular series on the streaming service, so it would make sense for Netflix to bring a show from the same creator online.

We’ll be watching out for updates to these questions and more as Netflix reports its earnings today at 4:00 ET/1:00 PT, followed by its analyst call at 6:00 ET/3:00 PT.

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