Netflix Gets Drawn and Quartered

Following the company's second-quarter move to raise its monthly subscription rate from $19.95 to $21.95, Baker says it appears that Netflix's churn rate -- the percentage of subscribers who drop the service -- will be slightly higher than expected over the next six months.

Summing up his report, Baker writes, "We believe our sub-growth-plus-price-hike-equals-margin-expansion investment thesis remains valid, though the timing is pushed out slightly and the trajectory is lowered some as well."

According to the latest figures from Nasdaq Trader, 20.2 million Netflix shares have been sold short by investors betting the price will fall. That amounts to 31% of the company's 65 million fully-diluted outstanding shares. After subtracting out the 20.4 million held by Netflix's officers and directors, as of March 4, the short interest amounts to 45% of the company's estimated float.

While Netflix swooned, shares in its big competitors held steady. Blockbuster slipped 14 cents to $14.43, Movie Gallery (MOVI Quote) added 2 cents to $17.74, and Hollywood Entertainment (HLYW Quote) added 3 cents to $13.11.