Netflix messed with perfection, stock down ~36%

Netflix used to be a company that was an innovator. Its first idea was to offer DVDs as a monthly subscription service with people able to get one or more DVDs at a time with one monthly fee and no late fees. This business model was dismissed by many at first but it caught on with the public. The result was that Netflix's service managed to crush the once mighty brick-and-mortar video and DVD rental store chains; that included Blockbuster, who filed for bankruptcy earlier this year and was later bought by Dish Network.

Later Netflix decided to launch a streaming video service, offering movies and TV shows that could be played nearly instantly from a PC, again for one monthly fee. Other movie download services stuck with the typical one time rental or purchase model for each movie or TV show; think iTunes. Netflix's all-you-can-watch model, however, became popular and as it added more content it started to gain subscribers. It also helped that Netflix expanded the number of devices that could run the streaming service to products like game consoles, smartphones and tablets and others.

Netflix at first added streaming video subscriptions as an extra for its DVD mail order customers. Later, Netflix offered up a streaming only plan that caused its subscriber base to jump to huge numbers, which also caused its stock price to climb higher and higher. By the summer of 2011, it seemed like Netflix could do no wrong.

And then Netflix made The Decision.

That decision, announced in mid-July, was to separate the streaming plans from the DVD mail order subscriptions completely. That meant that customers who wanted both would see a huge increase in its fees. If you want both streaming video service and one DVD at a time per month, you now have to pay $15.98 a month, which is a 60 percent increase from its previous price.

Netflix claimed that it was prepared for backlash from its customers in regards to this sudden price increase but that didn't turn out to be true at all. Netflix customers flooded the company's customer service department with complaints and others turned to the Internet, via message boards, Facebook and Twitter, to express their outrage on this decision. In the end, Netflix admitted on Monday that it lost over 800,000 subscribers as a result of this decision in the third quarter of 2011, much more than what was expected.

Netflix's stock price, which had already taken a huge dip since the summer, took a massive 27 percent jump downward in after hours trading on Monday. Investors clearly saw that Netflix and its management, lead by CEO Reed Hastings, had lost its way.

And yet, in many ways, Netflix still hasn't learned from its mistakes. It continues to defend the move to separate the DVD and streaming plans, saying that the real problem was that they did a poor job in communicating this move to its customers; consumers got the message loud and clear. That message was that prices for many of them would be going up and that a lot of them would have to choose from either the DVD mail order plan or the streaming plan. Some even dumped Netflix completely.

In its letter to shareholders on Monday, Netflix claims that just 7 percent of their new customers choose to pay $15.98 a month to get both streaming and DVD subscription plans. They seem to realize that those numbers would increase if they lowered their price but added, " ... if we were going to lower prices, we would do it on streaming."

Look, there's no question that in the future, physical media for movies will disappear for the most part and that downloads and cloud-based streaming services will take over. But we are not there yet; not by a long shot. DVDs and Blu-Ray disks are going to be around for a long time. At the very least, those products continue to have features like commentaries, extra behind-the-scenes content and more that Netflix simply cannot provide for their streaming only customers.

Also, there's the issue of content. Netflix has made huge strides in adding new and better content to its streaming service. But the fact is that customers get access to a lot more content from its DVD mail order service. Is it slower to get DVDs from Netflix than with the streaming video service? Sure. But you can still find and watch everything from new releases to obscure documentaries via the DVD business. That's not even mentioning the fact that Netflix can actually lose the rights to stream certain movies and TV shows. Want to watch Babylon 5 via Netflix streaming? You used to be able to, but not anymore. However you can still get DVDs of the show sent to you by Netflix in the mail.

Ultimately, Netflix needs to realize that even though its DVD business may be in decline, a lot of its customers still want to access the vast content that it provides compared to the streaming video side of its business. More importantly, they would rather not have to pay a lot of money to have access to both.

Restoring some kind of lower hybrid plan will have immediate benefits for Netflix. A lot of old customers will come back and it might actually gain some new ones. It goes without saying that Netflix's stock price will begin to recover instead of being in freefall. Finally, and most importantly, it will realize that even though the DVD business will eventually disappear it's still an important part of Netflix's plans and shouldn't just be regulated to the equivalent of the old folks home.

Netflix customers have given its message to the company. They want both streaming and DVD plans at a reasonable hybrid price. Netflix should man up, admit it made a mistake in this area, and give customers what they want. In business, it doesn't get much simpler than that.

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There must be a huge difference between Netflix Canada and Netflix in the US. Last I checked, you guys had WAY more selection than we do. What's irritating is hearing complaints about the US selection. In Canada, Netflix adds movies/episode at the LEAST every couple of days if not every day. The selection is growing. Slowly, but still growing. I really hope the US subscribers don't ruin it for the rest of us

October 1st, over 50 movies/television series were added. And then every day to every other day, anywhere from 2-5 things are added. And in case someone doesn't believe me, http://app.whatsnewonnetflix.com/

I thought of dropping the service altogether when I heard the CEOh! state the cost increase was nothing much more that two lattes per month. but ended up retaining the DVD subscription and dropped the streaming alone. When it was free, the streaming option was so bad I used to spend 20 mins before coming up with some crap to watch. Not sure if anything has changed. But the rate at which the movie studios are releasing content to Netflix might make me move away from them as well.

This really disappoints me. I like Netflix. I have watched shows/movies I never would have bothered with if it wasn't for Netflix. This makes me sad and it bothers me to no end that Netflix is expected to take the brunt of the blame for this when in reality, it wasn't all their fault.

As I've said in the other article, it's bad when a "free alternative" is much, much better than the paid ones. "Free alternatives" have 1000x more content that's available right after, or even before release. If the media companies want to combat piracy, they need to make their services BETTER than the "free alternative". Otherwise why is someone going to pay for something that's a lot worse than the free one? That makes no sense.

The media companies should be doing everything they can to keep Netflix afloat and providing them with all their content. Because if Netflix goes down, a lot of people will just go back to the "free alternatives". The companies are banking on that if Netflix goes down, people will migrate to other services, and some will, but a lot won't. How many of those 800k do you think went to Hulu, or just decided "Frak it, I'll get my stuff from Icefilms or TPB"?

gawd I am glad I didn't own any netflix stock flat out (not sure if its in my portfolio or not for retirement)

this drop reminds me of the internet stock bubble days... ugh...

Honestly, I blame greedy North Americans for this ****. At $15 a month you are still getting one hell of a bargain but everybody wants things but aren't willing to pay for it. The stupidity of the United States knows no bounds......

vladmphoto said,
Honestly, I blame greedy North Americans for this ****. At $15 a month you are still getting one hell of a bargain but everybody wants things but aren't willing to pay for it. The stupidity of the United States knows no bounds......

It's not as much greed, as much as people just having unrealistic expectations.

vladmphoto said,
Honestly, I blame greedy North Americans for this ****. At $15 a month you are still getting one hell of a bargain but everybody wants things but aren't willing to pay for it. The stupidity of the United States knows no bounds......

And what country are you from sir?

vladmphoto said,
Honestly, I blame greedy North Americans for this ****. At $15 a month you are still getting one hell of a bargain but everybody wants things but aren't willing to pay for it. The stupidity of the United States knows no bounds......

well my friend 800000 people would have to disagree with you on the hell of a bargin thing.

well everyone i know must be part of the 7% after the split we all left.all of us got dvds and streamed.yea netflix used to be the **** now as it turns out thet are ****.real shame.

The problem is/was the pointless price hike. Nothing has changed since the hike; the content is the same, the selection is the same, the service is the same. They did it "just because they can". Customers are sick of being screwed over, so they spoke with their wallet. No matter how many times the CEO tries to spin it, it was just a greedy cash-grab to see who would put up with it and keep paying. It's a real shame, because I love the Netflix streaming service. It's perfect for our needs and I don't want it to go away.

bjoswald said,
The problem is/was the pointless price hike. Nothing has changed since the hike; the content is the same, the selection is the same, the service is the same. They did it "just because they can". Customers are sick of being screwed over, so they spoke with their wallet. No matter how many times the CEO tries to spin it, it was just a greedy cash-grab to see who would put up with it and keep paying. It's a real shame, because I love the Netflix streaming service. It's perfect for our needs and I don't want it to go away.

No, they did it because the studios upped their costs for that identical material. The studios want Netflix to die, because they think this will bring people back to buying DVDs, or they can all have their own separate for fee online rental service, etc. etc. They are wrong about everything, of course. As they have been for a decade now.

I just hope Netflix have learnt their lesson and don't try to do this when they launch in the UK early next year. If they do plan to do this, they can save themselves time and money and not bother. LOVEFiLM (now owned by Amazon) still offers Disc+Streaming subscriptions which i love.

I think "perfection" is a bit much to use in this case. But they pretty much had it coming and they did a terrible, rotten job on damage control. This should be a prime example of how not to do damage control.

It mentions in this article about the commentaries and extra features available on discs, but fails to mention that most of the discs we get in the mail from Netflix do not have these extra features. They are RENTAL ONLY discs. It was one reason I rented to get those features as well so I didn't have to buy the disc, now many times those discs don't have the special features on them.

You know, its not so much that they jacked the rates up. Its the fact that content was/is going away too. So the user that had 1 DVD at a time and streaming for $8 and see the price go to $15 with Starz going away... it was a no brainer to dump it.

And thats just what I did. I stopped the DVD and kept the streaming ONLY because the kids use the streaming a lot more than we were using the DVDs.

Netflix has shown us that it IS possible to charge too little for a service. They cut the price too low in order to take out brick-and-mortar competitors (read: Blockbuster), and customers got used to the rock-bottom prices. This became disastrous when the content providers started charging them A LOT more for their content then before (around 1000%), and Netflix was forced to raise prices just to cover the costs of their current content.

That being said, consumers need to stop pointing the finger at Netflix and place the blame where it actually belongs (media mega-groups). Even at $16, the price for a combined DVD and streaming package are more than "reasonable". Or do people want to go back to $100/month we used to pay for practically the same entertainment?

i use to be a user of netfix ... but dropped it once they started with the stupid changed . sad NF use to be a great service

I've got Dish Network and I'm going to select the new feature from them. The Movie Pass
sounds good and I'll give it a go.

Their PR during this change was disastrous... but is it really fair to demonize the company? Netflix is getting squeezed by content providers. Once Netflix falls, I'm certain that alternatives like RedBox are next. Content providers are hell pent on getting more return on their properties. We can expect greater and greater fragmentation with more and more services like HBO-Go becoming available; everyone wants a bigger slice of the pie. Will this hurt or benefit the average consumer? That remains to be seen, but I'd wager no.

n3verm0re said,
Their PR during this change was disastrous... but is it really fair to demonize the company? Netflix is getting squeezed by content providers. Once Netflix falls, I'm certain that alternatives like RedBox are next. Content providers are hell pent on getting more return on their properties. We can expect greater and greater fragmentation with more and more services like HBO-Go becoming available; everyone wants a bigger slice of the pie. Will this hurt or benefit the average consumer? That remains to be seen, but I'd wager no.

They jacked up the prices using the 'content providers' excuse, a month later they lost Starz. Prices didn't change to reflect the rather large loss of content on the service to that failed negotiation. A month after that, they announce expansion into Brazil, and now they're announcing expansion to UK/IE. It's the increased sub cost to existing users paying for that expansion. This increase had nothing to do with 'content providers.' That was just easier for them to get people to accept than "Hey, guys! Great news! You're now subsidizing our expansion elsewhere while you lose offerings because we can't afford to do both, have a nice day!"

Tweaky Nippleton said,

They jacked up the prices using the 'content providers' excuse, a month later they lost Starz. Prices didn't change to reflect the rather large loss of content on the service to that failed negotiation. A month after that, they announce expansion into Brazil, and now they're announcing expansion to UK/IE. It's the increased sub cost to existing users paying for that expansion. This increase had nothing to do with 'content providers.' That was just easier for them to get people to accept than "Hey, guys! Great news! You're now subsidizing our expansion elsewhere while you lose offerings because we can't afford to do both, have a nice day!"

That's because they can't afford it. Even with the additional revenue from subscribers, they're going to operate in the red for the next year and a half.

It's (still) only $16 a month. What did you expect, exactly?

lordcanti86 said,

That's because they can't afford it. Even with the additional revenue from subscribers, they're going to operate in the red for the next year and a half.

It's (still) only $16 a month. What did you expect, exactly?

If they can't afford to expand and keep content for existing users they need to make sure the existing users are happy first. Expansion should happen only when they can do both and not compromise the service for existing users.

Tweaky Nippleton said,

If they can't afford to expand and keep content for existing users they need to make sure the existing users are happy first. Expansion should happen only when they can do both and not compromise the service for existing users.


Except staying in one market doesn't really work when your competition in said market is partially owned by the very content providers that are trying to screw you over. It's a losing proposition.

lordcanti86 said,

Except staying in one market doesn't really work when your competition in said market is partially owned by the very content providers that are trying to screw you over. It's a losing proposition.

Maybe it is, but us customers don't have to accept their price increases... And the numbers show we aren't.

Frazell Thomas said,

Maybe it is, but us customers don't have to accept their price increases... And the numbers show we aren't.


Where is the better deal? I hate to break it to you, but some streaming service that has all-you-can-eat entertainment, including new TV episodes and new release movies, for $10/month doesn't exist. For $16/month, what you get is still a hell of a deal.

I understand being angry about the price increases, and NF should have handled the whole situation better (Quikster? Really?). However, consumers have to be realistic and have some common sense.

lordcanti86 said,

Where is the better deal? I hate to break it to you, but some streaming service that has all-you-can-eat entertainment, including new TV episodes and new release movies, for $10/month doesn't exist. For $16/month, what you get is still a hell of a deal.

I understand being angry about the price increases, and NF should have handled the whole situation better (Quikster? Really?). However, consumers have to be realistic and have some common sense.

I have common sense...

I get enough from my Amazon Prime Streaming. Does it have everything that Netflix does? Who knows. I don't spend all day watching TV as I have a job that sucks up a lot of my time.

It has what I find interesting and it is a lot cheaper than Netflix (~$76/year).

lordcanti86 said,

Where is the better deal? I hate to break it to you, but some streaming service that has all-you-can-eat entertainment, including new TV episodes and new release movies, for $10/month doesn't exist. For $16/month, what you get is still a hell of a deal.
I'd have to disagree. Hulu Plus is a good deal. You don't get new movies but you get a TON of TV content, all unlimited, including brand new episodes. I can watch it on my computer, TV, iPad, or iPhone. I wish they had movies but I'm willing to take the TV content for now. Netflix has horrible streaming content which is why I was one of the people to jump ship right before the price increases came through. I don't see any benefit or value with Netflix at this time.

I'm not a user of Netflix, but I can tell you from an ISP point of view, its the best thing that could happen to bandwidth.
Netflix was a bandwidth hog, and ISP hated them.

nidaros said,
I'm not a user of Netflix, but I can tell you from an ISP point of view, its the best thing that could happen to bandwidth.
Netflix was a bandwidth hog, and ISP hated them.

true, but thanks to netflix, they increased bandwidth caps in canada. hope this doesn't lower that again.

Arpit said,
true, but thanks to netflix, they increased bandwidth caps in canada. hope this doesn't lower that again.
There's still plenty of other streaming services, and the downfall of Netflix will not end that. And many of them have higher streaming quality.

I have Charter cable, and it (among other providers) have an "On Demand" thing where we can watch a lot of stuff, well, on-demand. Sorta like Netflix (but without the pretty interface). There was a movie I wanted to watch. No available on Netflix streaming. Not even available on DVD or Blu-ray. But it was available On Demand. I'd have to pay a $4 rental fee or something.

That seems like a lot for just 1 movie, but I watch so few online now.

My DVD queue is empty. The last movie took weeks/months to get to me due to demand (the original Planet of the Apes). My daughter watches anime over streaming. The service was worth the $9.99 or whatever it cost before, as I didn't use it much and that seemed tiny. Now, at what seems way higher ($17.98 or something), I suddenly notice the cost. There isn't any more value, in fact, there was the scare of losing the convenience of having bother DVD & Streaming on one site.

They have been doing stuff to make their customers unhappy. Facebook can make one weird change after the other because its a free service. Netflix is ****ing off paying customers.

Xenomorph said,
I have Charter cable, and it (among other providers) have an "On Demand" thing where we can watch a lot of stuff, well, on-demand. Sorta like Netflix (but without the pretty interface). There was a movie I wanted to watch. No available on Netflix streaming. Not even available on DVD or Blu-ray. But it was available On Demand. I'd have to pay a $4 rental fee or something.

That seems like a lot for just 1 movie, but I watch so few online now.

My DVD queue is empty. The last movie took weeks/months to get to me due to demand (the original Planet of the Apes). My daughter watches anime over streaming. The service was worth the $9.99 or whatever it cost before, as I didn't use it much and that seemed tiny. Now, at what seems way higher ($17.98 or something), I suddenly notice the cost. There isn't any more value, in fact, there was the scare of losing the convenience of having bother DVD & Streaming on one site.

They have been doing stuff to make their customers unhappy. Facebook can make one weird change after the other because its a free service. Netflix is ****ing off paying customers.

It must be different in other markets. I have Charter as well and the On Demand selection is abyssmal.

GreyWolf said,
It must be different in other markets. I have Charter as well and the On Demand selection is abyssmal.
They probably had what he wanted.

I am going to cancel my sub before my next billing cycle. I am not watching a lot of movies and a lot of contents are not available for streaming. Also, with starz out of netflix streaming after feb its no point in keeping the sub

I have Hulu because it has what I want to watch. Right now, there is no single place to get ALL your streaming content. You have to go with whatever has what you want.

This is their fall from grace. If they were smart they would revert back, but they are pushing hard overseas and need their US subs to pay. The model isn't working and may cost them their company.