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.