If it wasn't clear before, it's clear now: The recession is having taking its toll on Netflix (NFLX). The company is still growing, but CEO Reed Hastings said growth has slowed significantly since last year -- down 30% year-over-year so far in October. Which is why today, Netflix re-lowered the Q4 revenue and subscriber guidance it already reduced last week.

On the plus side, Netflix's subscription model means most of its Q4 earnings will come from existing subscribers, so even if the company's subscriber growth is dismal this quarter, it should still hit its profit targets. (And fewer free trial subscriptions to subsidize means lower costs, and higher profits, too.)

More from today's call: No "material softening" in online ad rates; and less than 6% of subscribers use Blu-ray. Live notes below.

Key Stats:

Q3 Revenue: $341.3 million vs. $343-$348 million guidance, $342.6 million consensus
Q3 EPS: $0.33 vs. $0.26 to $0.34 guidance, $0.31 consensus
Q3 Subscribers: 8.672 million (preannounced), below the low end of guidance of 8.675-8.875 million
Q4 Revenue: $351-$357 million guidance vs. last week's $353-$359 million guidance, down from $357-$367 million original guidance, $358.8 million consensus
Q4 EPS: $0.30-$0.38 guidance, increased slightly from old guidance of $0.29 to $0.37, $0.33 consensus
Q4 Subscribers: 8.85-9.15 million guidance, down from last week's 8.95-9.25 million guidance, down from 9.1-9.7 million original guidance

LIVE Conference call notes:

5:02 Classical music. Call to begin shortly.

5:05 "Reconnecting phone lines" now. Wonder if they'll use email Q&A this time too?

5:07 Call begins. Standard disclaimers. Yep, Q&A via email again. This has actually worked really well.

5:08 Reed is here. In Q3, added 261,000 net subs, down 9% y/y, while total sub base grew to 8.7 million, up 23% a year ago. EPS up 43% y/y. Continue to improve NFLX service by adding more content that can be watched instantly on PCs and TVs.

5:09 In Q3, very happy with sales momentum of $99 Roku device. In early October, LG released BD300, first Blu-ray player to include instant streaming from Netflix. Goal to get streaming player in as many Blu-ray players as possible, will announce more Blu-ray partnerships as they're ready for consumers. Xbox software upgrade coming next month for Xbox 360 owners with Xbox Live Gold ($50/year).

5:10 Consumer comfort with watching video on laptop also growing. Continuing to invest laptop-oriented streaming. This quarter, will begin rollout of second-generation software, which runs both on Windows and Intel Macs. A huge step forward, will be announcing details shortly.

5:12 Impact of recession. Last July, substantially unaffected. Since then, economy has deteriorated. Recession means continued subscriber growth, but not as fast as last year. Net adds about 30% less than one year ago. For reference, Q4 guidance is for net adds to be 60% below last year's to 6% above last year. Good news is that earnings in Q4 will come mostly from existing subscribers, so Q4 earnings are insulated. If any effect from slowing growth now, will be to boost EPS, not reduce. Small contributor will be $1/month Blu-ray surcharge. Expect about 500,000 Blu-ray subs during this quarter. This number will grow.

5:15 Barry (CFO) joins. Two weeks ago, pre announced. As you know, Q3 results in line with pre announcement. Today's release also updated Q4. (Lowered.) Sub growth slipped below expectations in Q3. Good news is that in a difficult economic environment, managed to grow subs 23% year-over-year.

5:17 Gross margin was important contributor to strong earnings. Increased by 240 bps than expected, thanks to lower content costs, reflecting seasonally weak new release calendar. Calendar shipments reaching all time high of total shipments last quarter. DVD in line with expectations. Not seeing increased levels of DVD usage as consumers trim discretionary spending.

5:19 No exposure to subprime mortgage market.

5:22 Q&A to begin.

5:22 Lazard: Can you comment on pricing trends in online marketing spend? Search and display ads. Haven't seen any material softening in those rates, such that would improve our efficiency. Hoping for lower rates as a buyer, but... "Nothing's broken yet."

5:23 Lower priced plans? No, not really.

5:23 Next year will depend quite a bit on the economy. Expect a relatively similar economy to what we have, that's not healthy at this point. Will update on '09 in January.

5:23 Sharp dropoff in retail. Hoping to comment on Sept-Oct vs. July-Aug. Assume Oct much worse than previous expectations? In comments noted that in first time we broke out what we did in first part of Oct. Trending approx. 30% below growth. Growth is postitive, and 70% as big as one year ago Oct.

5:24 Will Starz add much bigger costs or more details on model? Don't break out details on contracts. But all of costs are built into guidance for the quarter.

5:25 Number of one-time events in quarter for G&A, exiting Red Envelope business. So that helped.

5:25 Growing adoption of Watch Instantly as more platforms, more content. Can't really see a dropoff in DVD usage because people who go for online streaming are different type of person. No good control for what those people would have done. Are feeling good about: With new Starz content, Disney Channel, more and more watching, which is exactly what we're aiming for.

5:26 SAC: Response rates down, less word-of-mouth growth than thought. Free vs. paid mix was lower than thought it would be, meaning higher SAC.

5:27 Can't get a read on rev share by looking at Capex. Spending is pretty steady.

5:27 Regarding Blu-ray price hike vs. needing to buy more product? Think still relatively small.

5:28 Usage did go down because during shipping interruption. Hard to know impact on profit. Don't consider it to be a contributor to higher gross profit in the quarter. Probably the opposite.

5:29 Who will Blu-ray price affect? If you want Blu-ray, go through additional Blu-ray step is a member. Only case it was opt-out; of those who had prior signed up for Blu-ray, those have to opt-out. For general subscriber going forward, it's opt-in.

5:30 Normal seasonal patterns in churn. Nothing really related to economy.

5:30 In August, net additions were light. Steady churn, lower gross adds. Probably because of Olympics. September overall more strong. Doesn't tie into retail pattern of worse and worse. Olympics obscured underlying economy because of reduced viewing hours.

5:33 Balance between earnings growth/sub/rev growth has not changed materially. If economy changes materially over next couple of quarters, might have to be something we'll look at. But power of subscription model gives us stability during these otherwise turbulent periods.

5:35 Reed: Don't push the panic button!

5:36 Wouldn't Starz studios want to deal with Netflix directly? Not sure what Starz' deal is. No inherent reason why studios would want to deal with NFLX. Starz paid for those rights, makes sense all around to get as many people seeing that content. Over 10k other titles direct with studios.

5:38 Blu-ray thin on title count, but on weighted basis, strong. Blu-ray for all new releases at this point. Player prices falling, same cycle as DVD. Like progressive scan only something on high-end DVD players, upscaling with HDMI out, think of Blu-ray as just a new, better, upscaling player. As prices come down, people who are just DVD watchers are going to get a Blu-ray player because it upscales the DVD pretty nicely. Optimistic as Blu-ray players come down.

5:40 What is outlook for more popular titles? Key obstacles? Money. Titles are available, but expensive. Need more people using it so we can monetize it. Need more players, increasing adoption on laptop viewing, will grow title count. Grew from 2,000 to over 12,000 in last 18 months. Will take many years, but think we're making great progress.

5:45 Conflicts between your service/CE devices and retailers who sell DVDs? Partnering with them to try to figure out how to sell more devices; especially pushing Blu-ray. Don't see a lot of conflict.

5:45 Bay Area penetration was 18.8%, up from 18.5% last quarter. Rest of country 7.4%, up from 7.2% in Q2.

5:48 Still expect one more device this year? Yes. Terms generally NFLX not exclusive; can put other video services on platforms. Xbox already has VoD service. Roku has announced plans to open platform; multiple service providers, which will help Roku sales and addressable market for NFLX.

Preview: Netflix (NFLX) took most of the surprise out of its Q3 earnings report, scheduled for this afternoon, during a pre-announcement earlier this month: Q3 will be mostly in line, but the crappy economy is taking its toll on growth, which caused the company to significantly lower its subscriber target for Q4.x

What we hope to hear from management today: Whether the company is planning anything aggressive to reingnite growth -- price cuts, expanding its streaming service, etc. -- or if it's just going to ride out the bad times with its current offerings. Netflix shares have dropped some 18% since the company lowered its Q4 expectations on Oct. 6, worse than the 12% drop in the Nasdaq composite index, according to the AP.

Either way, the company has grown faster this year than last year, thanks to reduced competition from Blockbuster: If the company hits the midpoint of its current end-of-year subscriber growth forecast -- 9.1 million subscribers -- that'll represent 21% year-over-year subscriber growth, up from 18% growth from 2006 to 2007.

See Also:
Netflix's Blu-ray Tax: $1 Per Month For HD Movies
Netflix Streaming Gets Much Better With Starz Deal. More Coming?
Sling Takes On Apple TV With SlingCatcher Set-Top Box
Not Recession-Proof, Either: Netflix Knocks Down Guidance