Netflix expects to lose a million subscribers over price increase

By on September 15, 2011, 7:30 PM

Netflix has adjusted its third quarter forecast today, lowering its subscriber outlook by about one million. In July, the company thought it would close the period with 25 million subscribers, including 22 million customers accessing Netflix's streaming platform and 15 million people receiving DVDs through the mail (12 million using both services).

In its latest update, the video outfit believes the third quarter will conclude with 24 million subscribers -- 21.8 million streaming, 14.2 million renting DVDs and 12 million doing both. The million subscriber loss has been attributed to the company's recent price adjustments, which went into effect on September 1 and costs more for the same services.

The company's new DVD-only plans cost $8 a month for one rental at a time or $12 for two. Additionally, it separated its unlimited DVD and unlimited streaming services, which were previously offered together for only $10 a month. Now users must pay $8 per month for unlimited streaming and another $8 to receive DVDs via mail.

Netflix's guidance update seems to have spooked or otherwise disappointed investors, as the company's share price witnessed a double-digit drop to its lowest point in 2011. As of writing, shares are $169.25, down some 19% since the company's announcement on Thursday morning. Neflix shares were $300 earlier this summer.

Nonetheless, the company stands by its decisions. "Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term strategic choice," Netflix executives said in a letter to shareholders. To justify its moves, the company gave investors its four-fold strategy, which we've included at the end of this post.

In addition to raising its prices, Netflix caught flak this month after losing its contract with Starz Entertainment. The pair signed a four-year deal in 2008 that gave Netflix access to over a thousand videos from Sony, Walt Disney and others. The companies failed to reach a new agreement and the existing contract expires on February 28, 2012.

The strategy behind the split of our services is four-fold:

(1) to create a dedicated DVD rental division that takes pride in great execution and maximizes the opportunity for disc rental over the coming decade;
(2) to enable us to improve our global streaming service even more rapidly, because it is not meshed with a domestic DVD business;
(3) to enable us, with the growth in revenue, to license more streaming content and thereby improve our streaming service even more;
(4) to remain very price aggressive, with $7.99 per month for unlimited streaming of a huge library of TV shows and movies, and $7.99 per month for unlimited DVD rentals, 1 out at-a-time.

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.




User Comments: 24

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Guest said:

Me makes it 1,000,001 :-) Last I checked like 8 of the top 100 movies are streamable. Pathetic. The rest on Netflix streaming is outdated stuff.

Guest said:

What is this non-sense about "improving services for customers" or "strategically beneficial" for long-term .....

...Netflix should just come out and say it as it is: Movie studios are threatened by it and continue to charge much higher fees for streaming services. As such, Netflix had to raise prices to continue to remain profitable.

It's as simple as that. The movie studios are losing a lot of $ with people streaming content vs. buying DVDs/Blu-Ray directly from them. It's obvious this had to happen sooner or later as Netflix cheap pricing was unsustainable.

MrAnderson said:

I'm not going anywhere unless the content goes south... I'm not happy about the price increase... but the value is still good. And I can afford it and want them to continue to thrive. They have to do this in order to make moves to succeed in the future. I cannot blame them for that... wow but 1 million... Will so many turn on them...

ramonsterns said:

I think it's time the movie industry get on with the times.

aj_the_kidd said:

Not that i want to do the math but I'm guessing the subscriber loss vs the increase in charges was reasonable, they will take a hit now and then the money will start pouring in again later on. If i had a service like Netflix available where i live i'd use it.

Mizzou Mizzou said:

Have been a Netflix customer for over five years and wasn't happy to see the price increase but have to admit that it remains a good value. Glad to see that DVD distribution is still a part of their strategy going forward, at least for the time being.

Guest said:

As a Netflix Streaming video customer only, I still think Netflix is a great bargain for the price and plan to continue using the service. But if the Starz Entertainment contract is not renewed, I might have to see what other options are out there since I have young children who love the disney cartoons/movies.

gwailo247, TechSpot Chancellor, said:

It was bad timing on their part to raise prices in an obvious shift to move people to streaming right at the time when their streaming licensing started becoming a problem.

It's funny that companies still pay millions for marketing and market research, when the internet provides all this feedback for free. I'm glad that so many people cancelled to the point where it affected the company's bottom line, because perhaps this will be a shift to companies paying a bit more attention to the vocal minority of complainers. Netflix assumed that they did not represent the average person, but it seems that they did indeed signal the popular view on the matter.

The only way that customers can affect change is by voting with their wallets. Now if only people stopped pre-ordering games until quality at release improves, I'd be happy.

9Nails, TechSpot Paladin, said:

I've not become a Netflix customer yet. I've been waiting for a price drop. And this move went in the opposite direction. So it's safe to say that I'll not becoming their customer. I'll continue to rent a Redbox movie now and then, play video games, and maybe do a little cable TV channel surfing from time to time.

Wendig0 Wendig0, TechSpot Paladin, said:

I dropped Netflix 3 months ago because of their inability to add new movies to the streaming service. Now I pay as I go with Vudu (more expensive, but you get what you pay for), and I get better quality as well.

MilwaukeeMike said:

gwailo247 said:

It was bad timing on their part to raise prices in an obvious shift to move people to streaming right at the time when their streaming licensing started becoming a problem.

It's funny that companies still pay millions for marketing and market research, when the internet provides all this feedback for free. I'm glad that so many people cancelled to the point where it affected the company's bottom line, because perhaps this will be a shift to companies paying a bit more attention to the vocal minority of complainers. Netflix assumed that they did not represent the average person, but it seems that they did indeed signal the popular view on the matter.

The only way that customers can affect change is by voting with their wallets. Now if only people stopped pre-ordering games until quality at release improves, I'd be happy.

You make a lot of assumptions... How do you know the cancellations affected them negatively and how do you know it will remain that way in the long run? Do the math... if you lose 5% of your customers but raise the price by 30% you come out WAY ahead. And you currently can't stream netflix in Canada (I've tried), because it's not available. Streaming isn't bound by geography, while DVDs are. This allows them expansion opportunities.

Why would you be glad they'd lose money? So they'd do what you want? They're going to do what's best for them, and you're going to spend your money on what's best for you. If Netflix can't align those interests that's their problem, you can find a competitor. They're not the govt, we're not stuck with them.

Don't forget the 'vocal minority' is just that... a minority. There's no end to changing policies to appease the complainers. You don't think Netflix would LOVE to be streaming you box office titles right now for $20/month?

Guest said:

This article reminded me to cancel my Netflix. I've been being charged for the past 3 months without using it at all. There's never anything good to watch.

Guest said:

@MilwaukeeMike: What? Of course you can stream Netflix in Canada, don't make assumptions just because you're computer illiterate. You probably tried to stream within Canada with an American account, obviously they'll block that. If not, then you just fail altogether.

gwailo247, TechSpot Chancellor, said:

milwaukeemike said:

You make a lot of assumptions... How do you know the cancellations affected them negatively and how do you know it will remain that way in the long run? Do the math... if you lose 5% of your customers but raise the price by 30% you come out WAY ahead. And you currently can't stream netflix in Canada (I've tried), because it's not available. Streaming isn't bound by geography, while DVDs are. This allows them expansion opportunities.

Why would you be glad they'd lose money? So they'd do what you want? They're going to do what's best for them, and you're going to spend your money on what's best for you. If Netflix can't align those interests that's their problem, you can find a competitor. They're not the govt, we're not stuck with them.

Don't forget the 'vocal minority' is just that... a minority. There's no end to changing policies to appease the complainers. You don't think Netflix would LOVE to be streaming you box office titles right now for $20/month?

Did you actually read the article, or are you just talking out of your cheese hole? Did you notice the part where they lost 20% of their stock price?

80% < 100%. But that's just my assumption.

I am glad that people are voting with their wallets and protesting something they don't like.

Moving on with your reading comprehension fail, a million people cancelled their accounts. That's quite a bit. So when all those "complainers" started posting, Netflix assumed (hey there is that word again) that it's just a a bunch of whiners, and that everyone will continue paying the higher prices. But lo and behold, for every whiner, there were 10-100 people who cancelled their account without posting.

Losing a million customers is pretty bad when you are a public company, even in Milwaukee.

Zilpha Zilpha said:

I canceled my subscription several months ago after exhausting pretty much every good title out there. It's a novel idea, but without the backing of the big studios there's too much of a content gap. I'm not surprised they had to adjust their subscriber forecast.

Vrmithrax Vrmithrax, TechSpot Paladin, said:

gwailo247 said:

It was bad timing on their part to raise prices in an obvious shift to move people to streaming right at the time when their streaming licensing started becoming a problem.

That occurred to me as well, until it became rather obvious that this move was precisely BECAUSE the streaming licensing was become a problem. The greedy studios started demanding higher cuts, trying to renegotiate new deals, even dropping out when Netflix couldn't pony up a dramatic increase in fees (yah I'm talking about you, Starz)... Netflix had to split the streaming side of their business to be able to properly allocate resources towards acquiring new/better content - or, in some cases, just try to keep the stuff they currently have as their costs increased. Their streaming service started out as a nice little bonus feature they were trying out, and has turned into a huge juggernaut. I didn't like the increase, but I am chalking it up to growing pains... We'll see if Netflix can actually make good on better content now.

lipe123 said:

I would personally pay them 25$ a month if they deliver the damn content.

Although I'm from Canada and the picture here is much different the fact of the matter is that there just isn't enough content to make it worth my while.

Sure they can raise the price but then the service has to raise as well.

ikesmasher said:

I wish they would cancel their DVD service. that would make them put actual movies on stream.

Of course, they can't do that. people still want to get their DVDs. Which they can't be blamed for, if they aren't as technical as some.

Guest said:

Yeah, but bottom line (pun intended) is its only 5%. That loss is way overcome by the 50% price increase. Funny thing is, many people canceled way before they had to, and Netflix got the float on their monthly fee because they didn't refund any money. Some people could have had 3 more weeks of service. Another chunk in Netflix's pockets. Smart move you arrogant CEO pr!ck.

Guest said:

Netflix streaming is a fantastic bargain in my book. The selection is deep and I am looking forward (hopefully) for it to continue to get deeper.

SNGX1275 SNGX1275, TS Forces Special, said:

Earlier today I got (and I imagine everyone that uses Netflix did) an email from the CEO. I'll post it here for those that quit Netflix or didn't subscribe in the first place.

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.

Really sounds like 2 different companies now. That will help in forcing Netflix to get more streaming.

Guest said:

It all comes down to GREED! That's what America is all about!

Mizzou Mizzou said:

It all comes down to GREED! That's what America is all about!

In case you're not aware, quality content costs money ... actually quite a bit of money.

Guest said:

You mean unverified respondents, or lets call it what it is dubious. The money spent is in qualifying the respondents. There is no free feedback and yes I do market research for a living.

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