• by Gavin O'Malley , Staff Writer @mp_gavin, October 25, 2011

With clear implications for rival content streamers, things just went from bad to worse at Netflix on new warnings of higher subscriber attrition and mounting costs.

“The company said it would see more cancellations as it grapples with the fallout from a price increase and other unpopular moves, including a failed attempt to split its online and DVD services into two separate companies,” Reuters reports.

“We believe the [Netflix business] model is unsustainable, as the company faces rising costs that it hoped it could pass on to its [subscribers],” Janney Capital Analyst Tony Wible wrote in a new research note, cited by MarketWatch.com.

All told, Netflix ended the third quarter of the year with 800,000 fewer domestic subscribers than in the previous quarter -- “its first decline in years,” The New York Times notes.

Still, “what really might have sent Netflix's shares into a nosedive is fact that the company doesn't think the subscriber defections are finished,” CNet reports.  

That said, Netflix still reported net income of $62.5 million, or $1.16, a share, compared with $38 million, or 70 cents a share, in the year-earlier quarter, while revenue rose 49 percent to $822 million. “Both revenue and income topped analysts’ expectations,” according to The Times.

“The good news for Netflix is that the company isn't the Internet version of Lehman Brothers,” writes Econsultancy.com. “After all, the company still has nearly 24m customers. But Netflix's missteps in the past several months have created some long-term challenges that, if not dealt with appropriately, could prove very detrimental.” 

Meanwhile, Netflix, “expects its misjudgments to reflect on the upcoming quarter as well, as it warns its shareholders that ‘revenue and profits in Q4 will be lower than (…) anticipated,’” The Next Web writes.