Netflix “Forecasting Error” Aftermath


Netflix has been on a bumpy road due to managerial decisions that led some customers very unhappy. Around a year ago, Netflix decided to split up into two companies that separated it’s DVD rentals and instant online viewing of movies and television shows. The rebranding, along with pricing changes and some pretty bad PR, had many customers drop their Netflix subscription. There was definitely a need for change, so the company would not go under and could return to profits. This is where the importance of forecasting comes into play.


Netflix made some changes and recently released their third quarter earnings to the public. After the second quarter, Netflix returned to profitability and again in the third quarter. There was one issue that CEO Reed Hastings addressed in his third quarter investor call. He stated that the growth was “within the range of guidance from a year ago, although not from Q1.” He made it clear that it was a forecasting error instead of a stunt in overall growth. Netflix had to lower its own forecast by two million subscribers, even though it grew by five million subscribers this year.


I feel that two million is a big number to miss by an incorrect forecast. Why do you think that they missed this by this big of a number? Do you think Hastings is just trying to make light of the situation by saying that the forecast error has not really affected them? Is he doing this to just reassure his company is moving forward and continuing to grow? Will the forecast error affect the company in the future?


Hastings is optimistic about the future of Netflix due to strong growth abroad with recent expansions to Europe and South America. Also, Netflix is trying to compete with Amazon, Hulu, and HBO by the high value of exclusive content deals that Netflix has already and is still acquiring. Hastings has made it clear that “the outlook (for the company) has not changed” even after the disaster of splitting up the company.

9 thoughts on “Netflix “Forecasting Error” Aftermath

  1. Forecasting is an amazing concept. The knowledge obtained from it can be so useful or very misleading because there are a few different types of forecast. The type of situation you are trying to forecast will dictate the best type of forecast you should use. The amount of data can also effect which type you choose. I’m not really sure if we have enough information to know if there error in their forecast was significant or not. We would have to complete a test of significance using previous data and then determine whether or not the p-values have relevance. I think one possible reason Netflix had such a deviation in their forecast error could be because they were looking for the wrong thing. They may have been analyzing the situation wrong and that would give them a forecast which may be true but irrelevant because it deals with a different situation. Instead of forecasting for potential customers, they may have forecast for loss of customers.

  2. I agree with the comment above about how we could use some more information regarding the error. With that said, I do not think that the error will be significant to the company especially since they still gained 5 million customers. The company split may have lost them customers but I do not think that trend will continue, movies online is huge in todays society. I often use Netflix in between classes to pass the time and I have friends who do not even have cable because they just use Netflix. What Netflix needs to do to make up for the loss of customers is to provide quicker and more frequent season updates. I frequently look through Netflix and feel that I have seen all of these movies before or think that there is not enough “new” material. Xfnitiy offers new episode of show, that are currently playing, an hour after its premiere. If Netflix could provide an option to like this then I believe their sales will greatly increase.

  3. As the previous two posts mention, forecasting is important. It can be either extremely helpful or extremely misguiding. If Netflix had under forecasted the amount of users and reported exceptional earnings, no one would have complained. However, because the earnings were over forecasted, it created an issue.

    As a person who worked in forecasting this past summer, I can attest to the amount of stress and pressure that goes into creating these numbers. There are many formulas, ideas and thoughts that go into creating these figures. However, a forecast is an ESTIMATE. It will almost never be perfect and that is something people need to take into account.

    When I am looking at a company’s financials, I think of forecasting as a very educated guess, because that is exactly what it is. When these forecasts come out, it is a way for companies to to give their opinions about looking forward. Generally companies want something positive to look forward to, rarely will they put negative forecasts about their companies out (unless absolutely necessary).

  4. The company has gained a significant amount of customers over the past year so I don’t think the error impacts dramatically. Since their downfall, they have picked up pretty well even after their $1 increase in monthly membership and error in forecast. They continue to stream high-demand popular shows and movies. The estimated forecast therefore should not be much of a scare since their recent improvements give them a huge benefit. I see only success for Netflix’s future, contrary to the earnings forecast.

  5. Forecasting can be quite tricky. Even though it is pretty accurate most of the time, there is still error. However, two million customers seems like a really big error to have. I think that in some regard, Hastings is trying to make light of a situation that didn’t pan out as favorably as it could have but I don’t blame him. To have that big of error though, the forecast itself had to be a little off. The company is still doing better overall than it was before. I would rather have them be honest about it than pull out accounting tricks to cook their books and commit fraud like companies have done in the past to make sure that they meet their forecasts.

  6. This is an interesting article because it explains how when forecasting is not done right it will be a problem you will lose money, and in this case not only they lost money but they also lost a lot of customers. I agree with you that losing two million dollars is a lot of money just by making a forecasting error that’s why when forecasting is being done they have to be very careful with it and review it before making it final. Even though they gained 5 million dollars but if they keep making mistakes with forecasting like this they will lose more money and more customers because this was first time error customers came back but if it continues customers will look at Netflix negative and won’t come back. So I think that forecasting is very important and could save you money but you have to make sure it is done correctly so that it doesn’t affect your business.

  7. I feel that Netflix being too optimistic about their future is what caused such a huge forecasting error for them. Although they grew by five million subscribers this year, they probably envisioned doing better than they actually are. By expanding their markets to Europe and South America, they have a greater chance to pick things up again and improve their sales and customer base even more, but I personally feel the split hindered their growth greatly. They still lost many of their most valued customers, and one of the most important things taught in marketing classes and business overall is that it is more costly to gain a new customer than to keep an old one. Netflix must reinvent itself and offer new content that makes it stick out above its many competitors in order for them to rebuild themselves back to what they once were.

  8. I agree with all of the previous comments above. Despite forecasting being “tricky” and hard to predict, I feel that it is very important and something that cannot be messed up- especially by 2 million! I am an accounting and finance major, and one of the things we cover heavily in auditing classes is forecasting. Not only are companies misstating their financial statements and lying to their shareholders/investors/public, but they are increasing their inherent risk and more likely to perform fraudulent activities. I think Hastings need to take more responsibility and understand the implications and severity of his mistake.

  9. Forecasting can be a valuable tool, but the results are not always stated accurately. The data is skewed by the desire to deliver favorable results to investors without regard for all the facts. The lack of public verification into the inner-workings of the company allows this to happen.
    I think that human pressures cause these forecast results to be manipulated in a way that falls outside of the goals and logic behind forecasting. I consider this to be lying, but it seems to be well accepted.
    The Netflix executives used the words “forecasting error” to put a positive spin on events surrounding the split of the company, which appears to have been for the better in terms of profitability. Using the term “forecasting error” in this context also attempts to legitimize the corporation’s misrepresentations of sales to encourage investment.

    The mail and disc side of the business has different operational risks and overhead than the Internet content delivery side of the business, so their decision to split the company was not surprising.
    To me, their ability to carry out the split effectively proves that Netflix is an agile company that was able to react to market changes in time to stay competitive.

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