Elbowing its way into the business disaster hall of fame alongside New Coke, the Edsel and Enron's accounting is Netflix's pricing strategy for its DVD-only service. Let's see: three year economic slowdown, unemployment, wage stagnation, movie box office declines, flat television set sales. Oh, and new video streaming alternatives. Hmmm, sounds like a great time to raise prices... What are we missing that Netflix' management sees? JL
Yinka Adegoke reports in International Business Times:
Netflix Inc cut its third-quarter forecast by 1 million U.S. subscribers, sending its shares down nearly 15 percent, after a price increase earlier this month caused customers to shy away from its DVD-only service.
In what Wall Street has called a "rare, large and surprising misstep" by Netflix Chief Executive Officer Reed Hastings and his team, the company said it would have 24 million subscribers at the end of the third quarter, down from a prior forecast of about 25 million. Fewer customers than expected are opting to take Netflix's DVD-only subscription package.
The company now expects to have 2.2 million such subscribers, down from a previous forecast of 3 million.
The company also cut its forecast for streaming-only subscribers, to 21.8 million from 22 million.
Lazard Capital analyst Barton Crockett expressed concern that the changes might also hurt Netflix's fourth quarter.
"Clearly, if the third quarter is slipping, there's risk to the fourth quarter, as the year-ago period was a time when everything went right for Netflix," he said in a research note.
The Los Gatos, California, company's decision to increase the monthly subscription for a joint streaming and DVD rental service by as much as 60 percent caused an uproar among customers and bloggers.
Netflix, which is under pressure from Hollywood studios and pay-TV rivals on its aggressive pricing, has argued that it sees the future in lower-cost streaming services.
"We know our decision to split our services has upset many of our subscribers, which we don't take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come," the company said in a statement on its blog
Hastings, who is also on the boards of Microsoft and Facebook, is often seen as a visionary for building Netflix into a successful competitor first to Blockbuster and then, with the introduction of streaming, to traditional cable and satellite TV distributors.
But the cable and satellite TV companies have been pressuring Hollywood studios not to allow Netflix to undermine the $100 billion pay-TV ecosystem.
Hastings now has to prepare himself for the possibility of another subscriber backlash as soon as February if Netflix loses some of its popular programing and movies.
Earlier this month, Starz ended talks to renew a deal that expires on February 28. After that, the pay-TV channel controlled by Liberty Media will stop providing its content, which includes exclusive rights to first-run Sony Corp and Walt Disney Co movies for streaming on Netflix.
Netflix "can't grow as fast the Street thinks," said Wedbush Securities analyst Michael Pachter, who rates the company's stock at "underperform." "They can't have the perfect world where content stays cheap and people sign up at low prices."
However, Netflix maintained its third-quarter financial outlook as well as its international subscriber forecast.
10 comments:
While I'm not happy about the new pricing structure, I don't really plan on leaving Netflix completely. I've had to suspend my service for a little bit while I have major things going on in my life, but I plan on going back eventually. One thing Netflix should consider: We, and several of our friends, have said that we would be willing to pay $20-$25/month if Netflix offered all of their available content to stream. It's always disappointing to find something I've been looking for, only to find that it's either dvd-only or just not available anymore.
What comparable alternatives are there? Even with raised prices, Netflix is a great value.
Even though the overall quality of the content is less than desirable, Netflix is a bargain at less than $10 per month for hours of entertainment.
A lot of customers actually want Netflix's price to go up so they are able to offer more content for streaming.
I'd easily pay $100 per month if I was able to have instant access to any TV show or movie ever made. More realistically, $20-30 per month for a significant improvement in quality is something I'd really love to see.
I understand that people are price conscious, but I don't see how Netflix is sustainable at this low price.
I agree that Netflix is a fine service and a good value. I have been a member for about five years. This post was directed at the strategic management decision to raise prices rather dramatically. I am guessing that they conducted trend analyses which provided some sort of indication that the opportunity matrix lay at the intersection of raised price and increased streaming. I would posit (based on experience) that whoever did the analysis had a management-centric viewpoint and either ignored or failed to properly vet other factors like macroeconomic conditions, announcement timing, proper communications framing of the advantage (one senses they didnt test their messaging)etc.
I pay over 3x the amount for my 2 DVD + Streaming than I do for coffee each month, and I brew my own at home! I really can't understand what people are bitching about, and c'mon what does the economy have to do with this, it's a luxury not an essential life thing. If you can't afford it at 15 bucks you couldn't afford it at 9.
OOOPS should read "I pay over 3x the amount for my coffee than I do for 2 DVD + Streaming each month"
What's so difficult to understand? Netflix had no choice but to raise it's rates. It was facing a multi-billion dollar increase in content licensing costs. If you're going to be mad at anyone be mad at the studios that forced them into the position by being the greedy bastards they've always been.
Of course no one is buying the DVD only option. Why? Math, that's why. You would have to get more than 2 DVDs per week for their 8$ service to be cheaper than redbox. It's still a great price for streaming and I'll continue to use the streaming features, but the DVD plan is just sily.
Blame Netflix? Seriously? What jackass wrote this shit? The studios are jacking up the price for their film/tv library and it's hurting the consumer. Then consumers flock away from netflix as a sort of protest. Cool. You know what the studios will do with that? Create their own digital library. Then we will have Sony Pictures subscription service, Disney, Time Warner, Viacom, and on and on. Support something that works and isn't owned by the studios already. Otherwise we're going towards a business model where there are 20 subscriptions services and you'll have to jump from one to the other every time you feel like watching something different - each at a price of about 8 bucks a month. Stop bitching. Or better yet, bitch at the real problem: studios hijacking your wallets.
I know people are so outraged by the increase and I’ve even heard that over a million customers cancelled the service last month. I know I loved Netflix but now I realized they are increasing their prices by so much and removing services then it’s not worth staying with them. I found out 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!
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