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Netflix To Lose Customers, Stock Value, Over Price Increase

Jeremy Scott | 1 year ago |

So a few weeks ago Netflix abruptly announced a price hike for their combined DVD & streaming service package, up from $9.99 to $15.99 per month. A lot of people were quite upset, and understandably so. As a Netflix customer, I wasn't particularly bothered, as I've always viewed the service as vastly underpriced and more than worth the cost (turns out that's not a popular viewpoint, as commenters have blasted me for my opinion). But now we're seeing some real-world impact for Netflix from the price hike, and it looks like they're taking a hit.

First we have this article from VideoNuze, which suggests that Netflix will lose as many as 6.5 million customers--the obvious culprit being their recent price hike, though surely some consumers left for other, non-price-related reasons. But whatever the reason for each individual customer's exodus away from the service, the estimated jump from the previous quarter's loss is striking:

That's not the only bad sign for Netflix. They also saw their stock price take a hit, according to the Associated Press. The company's forecast from yesterday saw the stock price tumble 10%.

So... are they panicking?

Not at all. In fact, it sounds like they were expecting this. And it sounds like they don't seem to have any regret. Reed Hastings, Netflix's CEO, said this:

"We are feeling great about the decision, as tough as it is."

And what that tells us, is that they truly are trying to phase out the DVD service with the price hike. In the eyes of Netflix, DVD's are on the way out, and streaming is where it's at, so to speak. So sure are they about this, that they're willing to sacrifice customers, revenue, and even some public perception.

The thing is... they're right. Everyone knows it. DVD's, for rental or for purchase, are waning as the dominant format for content. Not even the angriest customer could tell you with a straight face that DVD's are likely to have much future for any company.

But that doesn't take the sting out of the 60% price increase.

As I said in my opinion piece a couple weeks ago (though it seems many readers skipped that section), customers have every right to be upset when prices rise 60%. The fact that $15.99 is still a steal for the service they offer means nothing to most consumers. All they see is that their bill is going up dramatically.

But Netflix is banking on the future. They're willing to sacrifice short term gain in favor of long term financial foundations. And while I sympathize with customers who aren't ready to pay the higher price, it's easy to see why the company made this move.

Streaming will be the future. Even if Netflix stumbles some more and slowly fades into video obscurity, streaming will still be the format moving forward.

This is a golden opportunity for whoever ends up buying Hulu. Hulu never bothered to get into the DVD racket, so they don't have to worry about phasing that out or raising their prices. And with a new owner's vision, combined with the existing content deals in place, Hulu could be the life raft that many ex-Netflix customers swim to now that they've jumped ship.

About the Author - Jeremy Scott

Jeremy Scott is the founder of The Viral Orchard, an Internet marketing firm offering content writing and development services, viral marketing consulting, and SEO services. Jeremy writes constantly, loves online video, and enjoys helping small businesses succeed in any way he can. View All Posts By - Jeremy Scott

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What do you think? ▼

staceyb
Looks to me they have something in the works like a take over maybe? Jack the price then eat some competition sp people have limited choices and have to have Netflix? Hummm makes u wonder
http://www.facebook.com/profile.php?id=1052784385 Christophor TheAuthor Rick
Oh I canceled it when my Google Calendar alert came in that said "CANCEL F$&%ing NETFLIX!" I never even had the DVD rental add-on anyway. I canceled purely because of the way they went about it. Too bad people aren't as motivated to fight back against corps as they should be. I stick to my guns, no AT&T, no Wal-Mart and no Netflix...among others like Johnsonville Sausages (who supported the Gov of WI with excessive donations). Hulu hasn't done me wrong (surprisingly) , so I'm sticking with them. :)
http://www.facebook.com/profile.php?id=100000619089488 William Richmond
Thanks for the shout out Jeremy. Yes to follow on your point, I estimate incremental churn in Q3 due to the price change alone is probably in the 2.5-3 million subscriber range. A pretty substantial hit if the goal was to phase out DVDs. I still think the move was premature, though quite gutsy.
Andrea
I understand the price increase. What I don't understand is the disregard towards their customers. They're repeatedly ignored complaints, stating that they don't pay attention to online comments. Being an online service, I really don't understand that one. Also, they raised the price drastically in a time when the people who make their main customer base are forced to pinch every penny they can and they did so with little warning. Not to mention they haven't dropped a clue as to if the streaming service will even get better. I enjoyed the old campy movies, foreign, and indie flicks, but a lot of people don't. And I didn't enjoy them enough to pay more money. Now if they'd added to the instant download library first (rather than actually decreasing like they did) I doubt people would have cared too much. Not to mention this is the second price increase in less than a year.
http://www.facebook.com/profile.php?id=100361750022323 Video Leads Online
I wonder if the math works out... raise the price, loose some customers, but make more money in the long run as the ones that stay pay the bills better... this along with the idea of phase-out of DVD rentals, may be what they are aiming at.
Of course the "estimated" loss of customers is just that, an estimate.
Elizabeth
But for an alternative opinion about the value / staying power of DVDs, see this article by Milos Stehlik of Facets Multi-Media (a nonprofit Chicago film org)
http://facetsfeatures.blogspot.com/2011/07/its-film-that-matters-not-convenience.html
http://www.facebook.com/profile.php?id=100001183237802 Sheryl Lynn
Its GREED plain and simple. they can raise the fees, lose 1/2 the customers and make the same $ for 1/2 the work! don't be surprised if another increase looms once the dust settles. If they lose their customer base then the only way to increase profits is yet another increase. netflix is already famous for multiple increases!
Xavier
I too feel the pricing isn't a sticking point, the service is worthwhile, except . . the catalog of online movies doesn't match the dvd catalog. So if they are trying to force phase out the dvd service, they are not offering a compelling streaming service at this time. It has grown, but it's grown with a number of subpar or niche items. If they wanted a more compelling online service, works some more tv/movie deals, heck even buy an online gaming service such as Onlive or it's gaming cousin GameFly. What Netflix is doing now, seems like cutting off a few fingers to get a better grasp on the money.
Mike
This argument is nonsense. It would be one thing if the streaming content was the same as the DVD/Blu-Ray, and the same quality. But it's neither.
To me, the streaming content was just an added bonus, since when I joined Netflix there was hardly any streaming content (now there's more but it's still nothing like the DVD offering). So if I want to re-watch Willy Wonka and the Chocolate Factory over and over again, it's great. Until they offer actual New Releases and not "New (to Netflix) Releases" I am keeping my account closed.
http://www.facebook.com/profile.php?id=813909658 John Datin
Their smug response to the price increase is an about face to the email I received begging me to come back. Eff you Netflix. I hope you go under for your ineptness. Eventually you will figure out that your CEO is a moron and you'll have to give him millions to leave the company.
- http://www.facebook.com/profile.php?id=100000299809466 John Sisson
  Still cheaper than cable!
- http://www.facebook.com/profile.php?id=100002250654795 Ahmet Kozanoglu
  Amazon Prime and Redbox (if you want DVDs) are cheaper than both.
http://MSN Paula
We have to stand our ground. I think Netfix should lose more customers. So what are the rest of you waiting for. Get on the band wagon and LEAVE!!!
Craig
So the future is streaming with limited content and reduced quality while my ISP caps my bandwidth. Looks bleak to me.
http://www.facebook.com/profile.php?id=623467504 Karen Berman
So streaming is the rage of the future. Okay, how about jacking up the price when I can view current TV shows? 9 bucks was pretty fair for reruns. 16 bucks is too much.
http://www.facebook.com/profile.php?id=100002089842893 Brooklyn Bridges
I know all companies increase their pricing at some point in time but this was just extremely too much. I know I won’t be going back to Netflix any time soon because I’ve found another alternative. Now that DISH Network has teamed with Blockbuster, they have a bunch of cool offers that are available to New and existing DISH Network customers as well as non-DISH customers. Blockbuster has the most extensive library of movies, games and TV shows and you can get thousands of On-Demand titles straight to your PC or TV! Customers will also have access to over 100,000 movies, TV shows and games by mail with new releases coming out before Netflix and Redbox. You can exchange them inside a Blockbuster store and even get Blu-Rays at no additional price. The best thing about this new offer is that you won’t find these titles on DIRECTV Cinema or Comcast on Demand and everything is combined onto one bill! I actually work at DISH Network and I’ve been wanting to tell people about this for a long time and I want everyone to check it out!
http://www.facebook.com/profile.php?id=1209367500 Devon Christen
I know that DVDs are fading. I think it is a good idea to go to all streaming. The problem is, Netflix's streaming service is still very inadequate. Sure they keep adding new stuff, but most of it is crappy B movies and cult tv shows.
To give an idea, I decided to look up some movies Netflix has available. Now I am a fan of classic films, NOT new releases, so Netflix at least beats Redbox for classic movies. BUT, the availability to stream is small. I decided to look the classics from the American Film Institutes Top 100 movies of all time.
Of the 100 films I searched, only 20 were available for streaming. There were also some films that actually got REMOVED from streaming in the past few months (Pulp Fiction & Silence of the Lambs to name a few). So until the streaming becomes more selective, I will rely on the DVD service.
http://www.facebook.com/profile.php?id=1685093314 Steve Bell
I left Netflix to participate in the pile on. The new price isn't that much for heavy users. However, for someone like me, who maybe got 2-3 discs a month and streamed one or two movies it's not worth it. I can't figure out how they expected all these people to jump on streaming only when the selection truly sucks.
http://www.facebook.com/profile.php?id=100000586233410 Gordy Likness
I left netflix because of the insanity.they make record profits and then raise there prices, stupidity.i love there streaming, but alot of there content is only on dvd.if they streamed all there content or came up with a plan of 12.99 for streaming and dvd rental I would possibly reconsider giving them a try again.