NETFLIX feeling wrath of customers after price hike

[Rip Rokken]

I knew this would happen after Blockbuster started folding and Netflix jacked it's prices so high (which caused me to drop DVD altogether and go streaming only +Redbox for new releases). I've seen it happen before in a war between two local newspapers. One started operating at a loss to compete the other one out of business, and once the other paper folded, they immediately doubled the price of the paper. I figured Netflix would do the same (and they did), and I hope they learn a lesson this time. If they lose their licensing with Starz for streaming content, I may have to go with something else altogether.

http://finance.yahoo.com/news/Higher-Netflix-prices-equals-apf-1466852939.html?x=0&.v=8

Higher Netflix prices equals fewer subscribers
Horror show: Netflix losing more customers than expected on price hike, stock plunges 19 pct

Michael Liedtke, AP Technology Writer, On Thursday September 15, 2011, 5:09 pm EDT

SAN FRANCISCO (AP) -- Netflix's decision to raise prices by as much as 60 percent is turning into a horror show.

The customer backlash against the higher rates, kicking in this month, has been much harsher than Netflix Inc. anticipated. That prompted management to predict Thursday that the company --the largest U.S. video subscription service-- will end September with 600,000 fewer U.S. customers than it had in June.

It will mark just the second time in 12 years that Netflix has lost subscribers from one quarter to the next. The last downturn occurred during 2007 when Netflix lost a mere 55,000 from March through June.

The current hemorrhaging exacerbated fears that Netflix is losing the magic touch that increased its stock 10-fold in the three years leading up to the company's July 12 announcement about its higher prices.

Since then, Netflix has turned into Wall Street's equivalent of a box-office flop. Its shares plunged $39.46, or about 19 percent, to close at $169.25 on Thursday, leaving Netflix's stock price more than 40 percent below where it stood before the company unveiled the higher prices. The cost to shareholders so far: more than $6 billion in paper losses.

It could get uglier if the worst-case scenarios play out. Netflix suffered another setback earlier this month when Starz Entertainment ended talks to renew the licensing rights to a key part of Netflix's video library for streaming over the Internet. The fallout from that decision will hit in March when Netflix will no longer be able to stream the popular mix of recently released movies and TV shows that it got from Starz, raising the specter of another onslaught of customer defections.

"Netflix isn't looking like it's as good a deal because their prices are getting higher and their content isn't getting any better," said Wedbush Securities analyst Michael Pachter, who thinks the company's shares could fall as low as $110. "It's like they have taken the beef away from the buffet."

The customer exodus still hasn't convinced Netflix to reverse its course and lower its prices as it did in 2007 when it was engaged in a cut-throat battle with Blockbuster Inc. In announcing its lowered subscriber forecasts Thursday, Netflix emphasized it consider its new prices to be "the right long-term strategic choice."

The new pricing structure was driven by Netflix's desire to build up its service that streams video over high-speed Internet connections, even at the risk of hurting the DVD-by-mail rentals that used to be its main business. Netflix management believes the convenience of Internet video is the main reason that it has added 17 million U.S. subscribers during the past three years, establishing the company as a major player in the entertainment industry.

As the streaming service took off, Hollywood studios and other video distributors such as Starz have been demanding higher fees for the licensing rights to their content -- a trend that caused Netflix to dig deeper into its subscribers' wallets.

Even with fewer subscribers, Netflix expects to bring in $10 million to $25 million more from its customers than during the July-September period than it did April-June.

Netflix revenue won't keep rising, though, if more subscribers flee. Pachter thinks that could still happen because some customers won't be billed at the higher rates until the end of the month.

Besides being more expensive, Netflix's new pricing structure is also more complicated for subscribers who want to stream and rent DVDs from the service.

Until Sept. 1, Netflix offered plans that bundled DVD rentals and unlimited video streaming for as little as $10 per month. Those options are now sold separately, resulting in a cost of at least $16 per month for people who want streaming and DVDs. Having both choices is appealing because Netflix's streaming library primarily consists of old TV shows and movies, leaving DVDs as the main way to see recently released films.

To hold down costs in a tough economy, millions of Netflix customers are either limiting their subscriptions to a streaming-only or DVD-only plan. Other customers are canceling their accounts to protest the new pricing scheme. Those canceling are following through on threats that were made on Facebook and Netflix's own blog after the higher prices were announced.

Despite the vitriolic reaction, Netflix CEO Reed Hastings still thought the company would be able to add subscribers. In late July, he issued a forecast that indicated Netflix would end September with 25 million U.S. subscribers, up from 24.6 million in June. That prediction was lowered Thursday to 24 million. The revision mostly reflects Netflix's expectation that it will have 800,000 fewer DVD-only subscribers than it previously thought.

Many of the people no longer renting DVDs from Netflix will get their discs elsewhere. That could be a boon for Redbox, which rents DVDs for $1 per night through 33,330 kiosks in supermarkets and other retailers, and Blockbuster, which still has 1,500 U.S. stores after emerging from bankruptcy protection under the ownership of Dish Network Corp. Investors are betting Redbox will be the main beneficiary; the shares of Redbox owner Coinstar surged $3.33, or more than 7 percent, to close at $48.55 on Thursday. Dish Network's shares edged up 11 cents to $25.82.

This could be an opportune time for would-be rivals to attack Netflix's streaming service too, BTIG Research analyst Richard Greenfield wrote in a Thursday blog post. Internet retailer Amazon.com Inc. launched a free streaming service for subscribers to its two-day shipping service earlier this year. Greenfield and other analysts believe Google Inc., already the owner of YouTube, is eager to expand its Internet video offerings to include more movies. One way Google could achieve that would be to buy Hulu.com, which has been put up by for sale by the television network owners that supply its video content.

"Netflix made a bad move, raising prices as much as they did," Pachter said.

[conversationpc]

We dropped our Netflix subscription a few months ago and haven't really missed it so far.

[mikemarrs]

Dropped mine too a couple months back.

[Behshad]

I still got mine,,,$8/month aint that bad. They only changed the prices for the DVD/Bluray customers. If the streaming prices go up, I will drop it as well

[Greg]

Netflix has pretty much shot itself in the foot by raising subscription fees hasn't it? I don't do the mail in service anymore. I do enjoy the streaming service. Seems like if Netflix revamped its DVD service and tailor it after Redbox, they could possibly get some subscribers back.

[Ehwmatt]

I dropped my disc plan the day the price hike was announced. never used it much anyway - I primarily watch TV shows, both on actual DVD or streaming Netflix. So, I don't really need the disc plan even though newer shows are disc-only.

But, I've noticed the overall streaming content is getting worse too. There's hardly any movies worth watching on the streaming (mostly horrendous 80s movies you never even heard of, which says a lot considering I'm no movie snob/love 80s movies). If the content gets much worse TV-wise, I'll be dropping Netflix and dumping that money into a premium Spotify account. Cool music cloud streaming service if you haven't heard of it.

For all this talk about cloud computing, streaming TV/music, and the like being all the rage of media consumers, I just can't see myself ever wanting to give up actual ownership.

No matter how far we come technologically, computers can go down, home internet connections can go slow, and hell, as Netflix shows, material you might want to watch/re-watch might just disappear into the ether entirely without warning. For instance, one night I fell asleep watching the latest Resident Evil streaming from my AppleTV/Netflix account. Three nights later, I tried to resume. It was gone from the service.

On the consumer side, yeah, streaming is cool and all. But I am working 60-70 hours a week easily these days and thus, when I DO get the time to sit down and watch a TV show or movie, it better be enjoyable. There are nights where my streaming is fucked up for whatever reason (probably shitty Time Warner). And man, does that PISS me off. So, it's nice to have the discs/hard media for those reasons.

[Greg]

Even though I think the prices are too high for video rentals, I do love the Vudu app I have on my Playstation 3. Just about all of the content is in HD and you can rent just about everything on it. The last time I used it, the new releases were $5, but they do offer some older movies for .99 cents. Of course, I rent movies mostly if I know I'm going to be stuck inside for a day or two (winter snow storms or sickness) otherwise, I'm not home enough to rent movies and mostly what I watch during this time of year are the new shows and football.

[AR]

I knew this would happen after Blockbuster started folding and Netflix jacked it's prices so high (which caused me to drop DVD altogether and go streaming only +Redbox for new releases).

I've been considering doing the exact same thing.

[brandonx76]

Yeah, I was getting tired of getting slow delivery of new releases - so started getting Red Box...and it's not that bad since I go to the grocery store every few days...great to walk in and get new movies the day it's released...I still have streaming, but yeah, Netflix - don't be so greedy

[yulog]

The problem i found with netflix is ,they advertise movies that they dont even carry. You click on them thinking you will get them and they end up on the bottom of your list in a save section which net flix never has any intention of buying, its a scam to make customers think flix has every movie they would ever want.

[Ehwmatt]

Well,Netflix CEO issued a mea culpa mass e-mail to all subscribers explaining the pricing changes and announcing a new company this morning. Netflix is going to be a case study in business school textbooks pretty soon. What a mess.

Dear Matt,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

[conversationpc]

Well,Netflix CEO issued a mea culpa mass e-mail to all subscribers explaining the pricing changes and announcing a new company this morning. Netflix is going to be a case study in business school textbooks pretty soon. What a mess.

Boy, I hate it when companies just up and change their name when they screw up.

[Ehwmatt]

Well,Netflix CEO issued a mea culpa mass e-mail to all subscribers explaining the pricing changes and announcing a new company this morning. Netflix is going to be a case study in business school textbooks pretty soon. What a mess.

Boy, I hate it when companies just up and change their name when they screw up.

Ya, don't think it'll be enough to offer a videogame option on this new Qwikster brand. In the end, they'll probably end up a case study on "ineffective pricing/branding" in the Harvard Bus Review or something.

[Rip Rokken]

Beat me to the news, lol. Sounds like an apology without any corrective action. People are still getting ripped off... changing the name of the DVD-by-mail end doesn't do any good without a price reduction. Maybe they can't do it and survive... that's the just deserts of competing below cost to kill your competitors.

[Behshad]

Beat me to the news, lol. Sounds like an apology without any corrective action. People are still getting ripped off... changing the name of the DVD-by-mail end doesn't do any good without a price reduction. Maybe they can't do it and survive... that's the just deserts of competing below cost to kill your competitors.

I dont think they owe nothing to people. Look at the prices of everything else going up. No one is getting ripped off. they had a price increase, they informed people about it and they didnt stop people from canceling early without any penalties. Those who stay with them apparently can justify the price change and those who couldnt justify the change, left already
By adding the videogames , I thin they will gain more customers than they lost over the price increase. However the streaming is their future and that is where they will make tons of money , specially now that they dont have to pay Starz $325M/year after the end of the year when their contract is up .

[brandonx76]

They skirt the main issue...no need to apologize, but if you're going to, then you should just go back to your previous pricing model...still a pretty good value though...

So after they lose the Starz contract, won't alot of their content go away?

[Behshad]

They skirt the main issue...no need to apologize, but if you're going to, then you should just go back to your previous pricing model...still a pretty good value though...

So after they lose the Starz contract, won't alot of their content go away?

Any movies that start off with teh Starz logo will go away, I think during the past 2 years Ive seen probably 4-5 that were Starz exclusive.

[slucero]

The only reason they are splitting the two up is so they can eventually phase DVD mailing out...

DVD mailing is labor intensive and overhead (people) heavy... and in a declining economy the likely revenue decline will come from the DVD portion of the business, because the demographic for this portion is less affluent... i.e. they can't afford higher speed broadband and/or don't have computers in the household... in the declining economy these people will have less disposable income.. and will cut things like DVD via mail first... I'd expect them to price it into omission.

Streaming is the future... Netflix cost to offer streaming is FAR less than DVD mailing.. and more importantly.. those with higher speed broadband will likely have no problem with the eventual "bump" in pricing they'll likely get down the road, because its not a significant percentage of their disposable income. Additionally these folks have multiple computers per household.

The "nail in the coffin" for me on this is the naming change... changing the DVD service to "Qwickster" and KEEPING the "Netflix" name for the streaming service...

This is purely about economic driven positioning.. and while it appears stupid initially... longer term it makes absolute sense and it is an inevitability.

[Saint John]

When Apple totally moves into this market with AppleTV, Netflix will die a slow death. Apple has enough cash to provide the same service at cost, simply further supporting their already dominant ecosystem. Netflix is pretty much on borrowed time. Apple can afford to buy them right now, with really only ONE quarter's worth of profits, but I really believe they enjoy watching companies die a slow, painful death. Just ask Research In Motion, Nokia, Sony or Nortel. Apple is currently locking up contracts with all of the major motion picture players and networks, and their move into this arena will be swift and dominant.

[brandonx76]

When Apple totally moves into this market with AppleTV, Netflix will die a slow death. Apple has enough cash to provide the same service at cost, simply further supporting their already dominant ecosystem. Netflix is pretty much on borrowed time. Apple can afford to buy them right now, with really only ONE quarter's worth of profits, but I really believe they enjoy watching companies die a slow, painful death. Just ask Research In Motion, Nokia, Sony or Nortel. Apple is currently locking up contracts with all of the major motion picture players and networks, and their move into this arena will be swift and dominant.

Spot on - I believe it

[Greg]

The only reason they are splitting the two up is so they can eventually phase DVD mailing out...

DVD mailing is labor intensive and overhead (people) heavy... and in a declining economy the likely revenue decline will come from the DVD portion of the business, because the demographic for this portion is less affluent... i.e. they can't afford higher speed broadband and/or don't have computers in the household... in the declining economy these people will have less disposable income.. and will cut things like DVD via mail first... I'd expect them to price it into omission.

Streaming is the future... Netflix cost to offer streaming is FAR less than DVD mailing.. and more importantly.. those with higher speed broadband will likely have no problem with the eventual "bump" in pricing they'll likely get down the road, because its not a significant percentage of their disposable income. Additionally these folks have multiple computers per household.

The "nail in the coffin" for me on this is the naming change... changing the DVD service to "Qwickster" and KEEPING the "Netflix" name for the streaming service...

This is purely about economic driven positioning.. and while it appears stupid initially... longer term it makes absolute sense and it is an inevitability.

Yeah but, how would you explain the additional of the video game rentals? I suppose it's possible that they could do those as downloads?

[Behshad]

When Apple totally moves into this market with AppleTV, Netflix will die a slow death. Apple has enough cash to provide the same service at cost, simply further supporting their already dominant ecosystem. Netflix is pretty much on borrowed time. Apple can afford to buy them right now, with really only ONE quarter's worth of profits, but I really believe they enjoy watching companies die a slow, painful death. Just ask Research In Motion, Nokia, Sony or Nortel. Apple is currently locking up contracts with all of the major motion picture players and networks, and their move into this arena will be swift and dominant.

Apple is one of the biggest supporters of Netflix. One of Apple TV's biggest selling points is Netflix. I dont think Apple would get involved in this more than what they already have with their rental system (which isnt nearly as succesful as Netflix). Apple would have to sign with multiple studios for rights to all those shows and movies just to make $1 or two a month of each customer. Theyre smarter than that

[brandonx76]

When Apple totally moves into this market with AppleTV, Netflix will die a slow death. Apple has enough cash to provide the same service at cost, simply further supporting their already dominant ecosystem. Netflix is pretty much on borrowed time. Apple can afford to buy them right now, with really only ONE quarter's worth of profits, but I really believe they enjoy watching companies die a slow, painful death. Just ask Research In Motion, Nokia, Sony or Nortel. Apple is currently locking up contracts with all of the major motion picture players and networks, and their move into this arena will be swift and dominant.

Apple is one of the biggest supporters of Netflix. One of Apple TV's biggest selling points is Netflix. I dont think Apple would get involved in this more than what they already have with their rental system (which isnt nearly as succesful as Netflix). Apple would have to sign with multiple studios for rights to all those shows and movies just to make $1 or two a month of each customer. Theyre smarter than that

I agree, but I tend to see this as a temporary arrangement - eventually drive everything through Apple TV and iTunes outside of Netflix - except for the really shitty / low grade special interest content...

[Saint John]

When Apple totally moves into this market with AppleTV, Netflix will die a slow death. Apple has enough cash to provide the same service at cost, simply further supporting their already dominant ecosystem. Netflix is pretty much on borrowed time. Apple can afford to buy them right now, with really only ONE quarter's worth of profits, but I really believe they enjoy watching companies die a slow, painful death. Just ask Research In Motion, Nokia, Sony or Nortel. Apple is currently locking up contracts with all of the major motion picture players and networks, and their move into this arena will be swift and dominant.

Apple is one of the biggest supporters of Netflix. One of Apple TV's biggest selling points is Netflix. I dont think Apple would get involved in this more than what they already have with their rental system (which isnt nearly as succesful as Netflix). Apple would have to sign with multiple studios for rights to all those shows and movies just to make $1 or two a month of each customer. Theyre smarter than that

Excellent points, but I think this is something of a convenient relationship to build a base while Apple learns the particular nuances of the business. And once they do, they'll phase Netflix out. Apple is pretty methodical with their moves and they won't launch full service until they think they are absolutely ready. My guess is around this time next year.

[Behshad]

When Apple totally moves into this market with AppleTV, Netflix will die a slow death. Apple has enough cash to provide the same service at cost, simply further supporting their already dominant ecosystem. Netflix is pretty much on borrowed time. Apple can afford to buy them right now, with really only ONE quarter's worth of profits, but I really believe they enjoy watching companies die a slow, painful death. Just ask Research In Motion, Nokia, Sony or Nortel. Apple is currently locking up contracts with all of the major motion picture players and networks, and their move into this arena will be swift and dominant.

Apple is one of the biggest supporters of Netflix. One of Apple TV's biggest selling points is Netflix. I dont think Apple would get involved in this more than what they already have with their rental system (which isnt nearly as succesful as Netflix). Apple would have to sign with multiple studios for rights to all those shows and movies just to make $1 or two a month of each customer. Theyre smarter than that

Excellent points, but I think this is something of a convenient relationship to build a base while Apple learns the particular nuances of the business. And once they do, they'll phase Netflix out. Apple is pretty methodical with their moves and they won't launch full service until they think they are absolutely ready. My guess is around this time next year.

I just dont see Apple bother with paying all different kind of licensing fees, hiring emplyees for customer service and go through all this for $8/month. They might come out with their own Premium (read higher price) services, but if its a $20/month deal, it wont be a direct threat to Netflix.
Like you said, Apple wont launch a full service until they think theyre ready and might I add There's profit to be made there . At this time my guess is theyre pretty happy with the money the get from Netflix to allow them on Apple TV.

[verslibre]

Never bothered with Netflix.

Never bothered with RedBox.

Haven't held a DVD rental card in umpteen years.

If I like something/anything enough to own it, I buy it. I also buy many bargain DVDs — again, just the cool shit I like (lots of horror).

With all the content available on cable TV, and all the podcasts I listen to, I'd never have time for Netflix, unless I cut out listening to music altogether — and that's never going to happen.

[yulog]

I still got mine,,,$8/month aint that bad. They only changed the prices for the DVD/Bluray customers. If the streaming prices go up, I will drop it as well

I never use the streaming, my price actually went down 4 bucks when they made the increases, I have the 3 at a time dvd service. My issue will be in about 2 months they will have nothing that I want left in their list and I will be forced to quit. It doesn't pay to wait for new releases from netflix, redbox is much faster and cheaper overall.

Once i'm done with a list of about 23 in my queue ,i'm guessing I will be canceling my service. One thing to note , and this is a huge problem with netflix, I have over 20 movies in a saved section that have been there for 6 months, netflix has never made an attempt to purchase these movies ,as well as hundreds of others. For me this is somewhat of a shady scam to make people think that netflix has these movies when they dont, a filler so to speak, that just reeks of poor customer service.

[Behshad]

I still got mine,,,$8/month aint that bad. They only changed the prices for the DVD/Bluray customers. If the streaming prices go up, I will drop it as well

I never use the streaming, my price actually went down 4 bucks when they made the increases, I have the 3 at a time dvd service. My issue will be in about 2 months they will have nothing that I want left in their list and I will be forced to quit. It doesn't pay to wait for new releases from netflix, redbox is much faster and cheaper overall.

Once i'm done with a list of about 23 in my queue ,i'm guessing I will be canceling my service. One thing to note , and this is a huge problem with netflix, I have over 20 movies in a saved section that have been there for 6 months, netflix has never made an attempt to purchase these movies ,as well as hundreds of others. For me this is somewhat of a shady scam to make people think that netflix has these movies when they dont, a filler so to speak, that just reeks of poor customer service.

The save function doesnt mean that they have it. It simply means they dont have it, but if you put it in your save que and they do end up getting it, then they will move it into your real que

I am very pleased with the stream only membership. Quality is great , When I run it through my PS3 (or Apple TV) its in HD and they have a great selection.

[Rip Rokken]

Wow... they say 30% of customers are thinking about ditching Netflix... that's a hell of a hit.

http://video.foxbusiness.com/v/11710366 ... _id=163589

[Ehwmatt]

They skirt the main issue...no need to apologize, but if you're going to, then you should just go back to your previous pricing model...still a pretty good value though...

So after they lose the Starz contract, won't alot of their content go away?

Any movies that start off with teh Starz logo will go away, I think during the past 2 years Ive seen probably 4-5 that were Starz exclusive.

Just about any halfway decent movie I've watched off the streaming service was Starz. The movie content on the streaming service is laughable at best already. And I'm not even opposed to cheesy 80s movies. But man, I haven't even heard of the shit they have on there.

As far as them being able to do whatever they want with the pricing, tell me a business that increases its flagship/basic product by 65-70% in a month's time that survives (other than utilities/necessities).

At bottom, one of two things happened here:

1. Netflix knew their pricing was bogus all along, did it for a few years to rope people in and help expedite the death of competitors (e.g., Blockbuster), and hoped they could get you hooked on the service enough to tolerate the price increase. This is the smart phone/data plan model the cell phone providers obviously followed from day one.

2. They legitimately thought they could undercut competitors with their pricing and it backfired.

Neither is excusable and either will lead to Netflix being a business laughingstock within a few years.