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Netflix, Inc. (NASDAQ:NFLX) reported its earnings today for the quarter ending in June. In the three months the company earned $0.11 per share on revenues of $899 million. The company has faced challenges in the last year reflected in these numbers.

In the same period last year Netflix, Inc. (NASDAQ:NFLX) posted earnings of $1.26 per share. The substantial drop in profitability is a worry for investors going forward. Last June the company announced revenue of $788.6 million.

In the lead up to the announcement consensus estimates put the company’s earnings at 4 cents per share on sales of $889.5 million. The company has seen its margins plummet in the last twelve months despite increasing sales. The firm is, at the very least, well ahead of the expectations of analysts, though there is still a marked decline in earnings.

Netflix is constantly increasing it number of subscribers, and those subscribers are using the service more and more. The question from investors is whether the business model is sustainable in the face of such a steep drop in profits. The company’s executives are sure to face tough questions in the conference call that will come with the official announcement.

Netflix has had a tough year trying to streamline its business model and grow as a web service. Last Summer the company announced a controversial and quickly rescinded decision to split its business into two parts, an online streaming service, called Netflix, and a DVD mail service that was to have been dubbed Quickster.

That decision, and the two payment model propose in the strategy was almost universally blasted as poorly thought out, and against the interests of customers. The firm has since taken a new direction, producing exclusive content for its streaming service.

The firm is now involved in the production of a new series of the cult sit com Arrested Development. The incumbent fan base of the project will provide a certain success for the company but there are problems in this new direction.

Netflix, is first of all, inexperienced in television production, that is not a complete show stopper but it is an obstacle that needs to be overcome with the hiring of talent and the building of relationships. That, along with actual production, is expensive.

The Netflix, Inc. (NASDAQ:NFLX) revenue model may have to be altered in order to pay for the building of infrastructure. That is not something that sits well with consumers. Netflix is the biggest player in the industry right now but competition is building. Challenges clearly lie ahead for the company.