Posted on Friday, September 16th, 2011 by Germain Lussier
When Netflix raised its base price for DVD rentals and streaming content by 60% on September 1, they knew they would take a hit. That hit, according to reports, will probably be about one million customers. However, 80% of those departing customers are people who were only using the DVD part of their service and don’t realize they can continue to do that at the same price. The price increase is only for people who want to rent DVDs and stream content and people who do stream frequently are likely to stick around, especially since Netflix executives see their serialized TV offerings exponentially increasing in popularity, something they don’t expect with DVD rentals. There’s much more after the break.
In a report by Paid Content, Netflix revealed their projected losses of one million customers to the price hike.
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.
Netflix now admits their biggest PR snafu was embracing the price increase and not the fact that users can stick at the lower price if they only want to rent DVDs or stream movies, instead of both. Since everyone had the ability to do both before September 1, everyone was hit with the price increase. But Netflix didn’t make a big deal of the fact that you didn’t have to pay more if you were willing to change your plan.
That has led to a lot of confusion and problems, especially financially. In fact, public perception and facts about the situation are totally different, according to Business Insider. From Netflix’s point of view, losing a million customers won’t hurt the bottom line because people who stick with their old service are paying more. But investors see numbers related to the price hike and customer loss, and cringe. The stock has been in a downfall over the past few days when this information was released.
This bump in the road may be part of Netflix’s grand plan. The company is slowly trying to move away from DVD rentals because they see DVD as a dying medium. Streaming is the future. As I said above, most of those people sticking around through the price hike are doing so because Netflix’s streaming library continues to improve, especially when it comes to TV. Recently they added Mad Men and Breaking Bad to the list, with many more coming. Shows like that are keeping customers around. Netflix chief content officer Ted Sarandos spoke to that point, as reported by Deadline:
The DVD business has a long life in middle America. It’s just not part of our future….TV feels more like mini-movies. If I really love a show, the first thing I want to do is watch the next episode. Having to wait a week is pretty frustrating.
I think Sarandos is right. As TV shows get better and better, people are gravitating to them more and more. Just think about your daily life. Odds are you’ve heard more conversations about Breaking Bad or The Wire in recent years than the Oscar Winners for Best Picture. Even the best movies have a tough time measuring up to the best TV and if Netflix offers those shows in a way that people can just enjoy long marathons, people will pay for it.
What are your thoughts on all of this?