In an earlier post titled Netflix responds to customer social media outrage, Netflix addressed customer dissatisfaction with it’s a newly announced business model (and price increase) and the CEO produced a video explaining his actions. I ended my post with the idea that time will dictate if Netflix’s customers will accept their new business model. The results are in: Customer feedback has reversed Netflix decision to split its business in two in just a few weeks.
On July 12, 2011, Netflix raised it prices from $9.99 US for a combined movie mail order and streaming service to two separate services at $7.99 US each (a 60% increase). Customers balked.
Netflix knew that it was going to lose customers with this move. On Sept 15th, 2011, it advised analysts that its projected subscriber numbers would be reduced by 1 Million in the third quarter of 2011. It was prepared to lose some customers based on the expectation that they would gain many ‘streaming’ customers. However, the volume of movies available on streaming is much less than those available on DVD.
Then on Sept 18th, 2011, Netflix tried to explain itself in a video from it’s CEO (see Netflix responds to customer social media outrage) and at the same time, announced that it would split its business into two: one for Internet movie streaming and one for DVD mail order called Qwikster. Customers complained again. The concern from Netflix best customers (those that wanted both services and represent 50% of their subscribers) was that they now needed to handle 2 accounts, pay 2 bills, where they only deal with one account in the past.
On Oct 10, 2011, CEO Reed Hastings said “we are going to keep Netflix as one place to go for streaming and DVDs … in other words, no Qwikster.”
And there is trouble ahead as Starz, a company that supplies streaming movie videos from Sony and Disney to Netflix announced that it was ending talks to renew their contract to provide movies to Netflix. The current contract ends in Feb 2012. That decision will decrease the value of Netflix’s streaming offering possibly reducing its subscriber base even more.
Netflix did not address the customers dissatisfaction with the price increase saying “While the July price change was necessary, we are now done with price changes.” 247Wallst.com commented: ‘In other words, what used to cost $10 now costs $16, so get over it.’ According to 247Wallstreet, “Customers who thought Netflix’s new pricing was too expensive will still think that’s true. The company’s earlier apology for its decision to split the company’s business didn’t sit well with customers, and this latest step backward won’t go down any better. The main issue is availability and cost, and Netflix is going to hold the line on the price increase.”
The stock price of Netflix is another indicator of both customer and investor dissatisfaction. Netflix went from $298.73 US on July 13, 2011 to 208.75US on Sept 13, 2011 and is hovering around 106.00 on Oct 11, 2011. That a drop of over 60% in share holder value in three months. I would expect shareholders will make themselves heard in addition to customers.
The saga will continue.
P.S. If you want to receive more of this great content, fill out the form beside this post or at the bottom of the screen or on this page and get a free report and new blog posts sent to your email address.