Netflix has proof of the consequences of giving customers price hikes and attempting to spin off DVD services. Monday, the company reported losing 800,000 subscribers in their third quarter. The report sparked a drop in their shares and yesterday, the drop continued. “Netflix plummets on weak outlook, downgrades” by reuters.com reports shares “plunged 34% in heavy trading on Tuesday”. Overall, since July, the shares are “73% lower than their high of just under $300” and “its market value has shrunk by about $9.76 billion”.
After receiving backlash, Netflix has announced they will no longer spin off the DVD service into another company. So, what does losing 800,000 subscribers after a price hike and attempt to split services mean?
It means that Netflix is still held to their subscribers. Despite being the darling of Wall Street and many people, like myself, who enjoyed their underdog success story, the reality is the company is not untouchable. Pissing off subscribers means losing them and thus losing the means of the business.
It means that Netflix is still held to their subscribers. Despite being the darling of Wall Street and many people, like myself, who enjoyed their underdog success story, the reality is the company is not untouchable. Pissing off subscribers means losing them and thus losing the means of the business.
One of the greatest defenses of the reasons behind the price hike and spin-off attempt is that Netflix wants to move away from the DVD-by-mail service and focus on streaming. CEO Reed Hastings made it clear that the company could not have sustained the DVD service under the lower price structure. Thus, Netflix needs an exit strategy from DVDs but the strategy has to include a way to ease transition for subscribers and better ways to communicate with investors and subscribers.
Where Netflix went wrong was trying to do everything at once. I’ve said it before that it would have been better to do gradual price hikes. And after claiming they were not phasing out the DVD service, Netflix tried to spin it off thus proving they had lied to the public. The company’s response to the angry backlash was to claim it “unfortunate” as if no one at the company had the sense to expect such anger. Now, the company understands its action were stupid. Losing 800,000 members is a clear message that anger can be turned into action. In the future, the company is going to have to think of their subscribers when making plans, which is how a company is supposed to think when their business is subscription-dependant.
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