Netflix Account Losses Much Higher Than Expected After Pricing Backlash

Netflix has lost 800,000 subscribers in the last three months, according to numbers released as part of the company's third quarter financial report on Thursday. The streaming-and-DVD site is down to 23.8 million users as of September 30, 2011, compared to 24.6 million users on June 30, 2011.

The reason for the loss, per a letter to investors written by Netflix CEO Reed Hastings and CFO David Wells:

Our primary issue is many of our long-term members felt shocked by the pricing changes, and more of them have expressed that by canceling Netflix than we expected.

In June, Netflix announced the separation of its DVD and streaming services, which effectively made the cost of bundling the two together $16, a 60 percent increase from the previous price of $9.99. This price hike, and the seemingly callous way in which Netflix carried it out, caused an incredible subscriber backlash in the form thousands of comments on the Netflix blog and even more outraged tweets.

The perception that Netflix was out-of-touch gained momentum in September when Netflix announced that DVDs would be available only on a separate website, called Qwikster; that the Twitter account @qwikster belonged to a foul-mouthed teenager did not help matters, and Netflix quickly reversed course and killed the Qwikster service before it even launched. Hastings and Wells analyze the saga briefly in the letter to investors:

While we dramatically improved our $7.99 unlimited streaming service by embracing new platforms, simplifying our user-interface, and more than doubling domestic spending on streaming content over 2010, we greatly upset many domestic Netflix members with our significant DVD-related pricing changes, and to a lesser degree, with the proposed-and-now-cancelled rebranding of our DVD service. In doing so, we've hurt our hard-earned reputation and stalled our domestic growth.

The devastating subscriber loss announcement comes on the same day that Netflix unveiled plans to open a website in the UK and Ireland, continuing an international rollout that began with Canada in 2010 and over 40 Latin American and Caribbean countries earlier in 2011. The letter to investors also cautioned that this rollout could push the company into the red briefly in the fourth quarter, as international losses could outpace domestic profits.

Netflix stock is down to a price point of under 100 after hours; just before the price hike was announced, it sat at a 52-week high of about 324.

Comments

[Scientist2012]

03:21 PM on 10/31/2011

Netflix, stop changing, and quit listening to focus groups and flawed analysis, hire replacements

[SquareSircle]

04:43 PM on 10/28/2011

Netflix was only popular than the other streaming websites because it provided the plan of DVDs and instant streaming together and it was cheap. Now that the plans are different, they don't have that "it" factor which seperates themselves from the other online streaming sites.

[glenya7121]

12:30 PM on 10/28/2011

Greed is a terrible illness.

[RogueRoman]

12:05 PM on 10/28/2011

What I love about this whole situation is that yes, the American Public can change the things we don't like by the way we vote, but especially where we spend (or don't spend) our money. The Netflix back peddle is a perfect example of what we can do when we literally say "I am mad as hell and I'm not going to take it anymore!" Go 99%!!!!

[haitiram29]

06:23 PM on 10/27/2011

Netflix wanted their customers to leave DVD’s for online streaming. 1). Although it’s more expensive on their part to get more online streaming films added, customers can’t drop DVD’s altogether if there isn’t a broader choice of films available. (For example: Having a film like Iron Man 2 available online, but the first Iron Man is only available on DVD) 2). Not all customers are up to date with their technology. If you hadn’t noticed, it’s a tough economy out there. Not all customers have access to an X-Box, Blu-Ray, Tivo, or a Television with built in internet access. 3). Customers shouldn’t have to find out on the news or online that there is a sudden price hike of 60%. If you’re going to make changes like these, you should do it gradually. Don’t spring it on them suddenly. 4). Splitting the two services only would result in customers having two separate websites to visit and two separate bills to pay.
The CEO didn’t need a Consumer 101 course to get a better understanding of the customers before. Unfortunately, the CEO needs it now.

[pat35dublin]

05:47 PM on 10/26/2011

i am one off these angery customers that got hit with there price hike but i thought hold on i'll wait and see if things got better as in much better streaming content.. never happened and i expect it is not going to get any better, everything they show seems to be a year behind the t.v. well netflix i think it's time to say so long and good bye, hulu here i come for $9.00 a month and updated t.v programes.. one more customer gone it now stands at 800,001...

[Fernando]

04:34 PM on 10/26/2011

This whole thing is being attributed to his raising prices. Not so, at least, that's not the whole story.

I, like many other people, didn't use streaming and by switching to DVDs only I ended up paying less than I had when both services were attached. I was happy with the change and really, business raise prices and lose customers as a result all the time. The problem was that Netflix relied on the media to tell its customers! Hastings doesn't have the first clue about customer service.

Then, when the "Sunday Night email" went around, Hastings made it even worse by announcing his ridiculous new plan. When I read it I honestly thought Netflix had been hijacked and the email was a hoax.

I don't think they'll go bust but Netflix isn't going to recover any time soon either. The rise in content cost for streaming is limiting what they can offer but even if Hastings can't be faulted for it, he made a bad situation much worse. Unless he is seriously negotiating with Starz to get more content the rise in price makes no sense anymore.

[wingthwong]

04:26 PM on 10/26/2011

Greed has made many companies into dinosaurs long before they were expected. Greed and lack of product will make you extinct quicker. Netflix never had a good streaming quality. The movies that were supposed to be advertised to you per your inputs were never anywhere near correct. I specifically requested no horror, no adult drama, no toddler shows, and no documentaries, but those were the main ones being posted for me to view. I couldn't view genres that I was interested in whether renting or streaming. Then you increase price and split service. Wow. This is not a neccesity people. Like someone already posted Bank of America, like Netflix, is next in line. Consumers are finally opening their eyes to government and corporate scamming and greed. They want to hold on to their money a little longer now as it is more rapidly being stolen from them by greedy politicians and corporate board members.

[Con Heartist]

03:48 PM on 10/26/2011

I too dropped them over a year ago because I subscribe and they took my $$$ faithfully every month and when I was away on vacation I couldn't access any service because I wasn't at home. So, screw you ... I've turned to other streaming sites.

[wayne the pain]

03:36 PM on 10/26/2011

I guess Reed Hastings lost the magic touch with this blunder! In the middle of one of the longest and worst recessions in generations he decides to raise prices. Raising prices on something that you may not even want but keep because that is easier than canceling was a huge miscalculation! It one of the few he has made!

[FiredUpRTG]

01:09 PM on 10/26/2011

I guess they un-occupied NetFlix!

[jackjmass]

12:29 PM on 10/26/2011

Not so Quikster, Netflix, you paid scant attention to your customer base, the ordinary Joe who put you on the map as one of the most dependable, much needed and reasonably priced avenues for seeing films in the quiet of the home. So then you got all fancy with your customer, and started on a streamimg spree, ignoring the folk who loved seeing that red envelope in their mailbox. It's an old axiom, but nobody can kill a company like the company itself. All the big shots, CEOs, CFOs, marketing geniuses, accountants, demographers, everybody but the lowly employese who stuff DVDs in those recognizable red packets, must have sat around that shiny table in the board room, and agreed like the sheep they are, that this change was a stroke of genius. But Reed Hastings, to use the OWS people as an example, any time a customer thinks he is being de-valued, he will figuratively "Occupy" the company or brand, and cut off major sources of its revenue. So watch out BOFA and all others who don't care a hoot about customer loyalty, America is boiling angry, and even a stupid, innocuous red envelope could foment a movement.

[madcityy]

12:11 PM on 10/26/2011

GREEDDDDDDDDDDDDDDDDDDDDDDDDDD,,I DROPPED THEM A YR AGO,,THEY NEVER

HAD ANY MOVIES I WANTED.............THIS IS NO SURPRISE.............

[jimgreenwich]

06:33 AM on 10/26/2011

I guess some of us American's haven't observed the Gov't, " Wic" trading outside your super market. Yea, get your free food with Gov't stamps/ food tickets, then go out in the parking lot to sell your free food supply to your pals at half the store price pocketing the money. How about store employee's that stare at you when you ask them a store related question? Their response, "That ain't my department." How about those faking injuries and go on social security disibility, while secretly working elseware? These big companies are the ones providing jobs, so instead of following those who do nothing and take out their anger on the, "rich jerks" go out and accept responsibility for your current situation and change it. It seems the Country is angry and looking for the next popular punching bag to take their anger out on.

[Con Heartist]

03:49 PM on 10/26/2011

Go rant somewhere else.

[Gusto2]

02:39 PM on 10/27/2011

What the hell your comment has to do with Netflix? Please stay focused.

[NeedSleep]

06:28 AM on 10/26/2011

Which customers did they lose? The $10 a month customers or the $25 a month customers or the $45 a month customers? They would be looking at losing anywhere from $8 million to $36 million a MONTH with the loss of 800,000 members. Since they say the loss was mostly of long time customers, you know that doesn't mean $10 streaming subscribers but rather the $25 or more dvd/streaming customers after the price increase and that boneheaded Qwikster idea.

I'll bet they'd like to take back those "If you don't like it, take a hike you losers. Who needs you?" comments they made when customers were first complaining of price increases. Then topping that off by telling a segment of their existing customers (DVD renters) that they were more effort than the company wanted to have to deal with even though that was why those customers were customers in the first place...

Somewhere along the way, many companies lost the idea that customers are where they make their money and that a company's name and reputation should not be messed with because loss of a good name meant a loss of customers which meant a loss of revenue. Now they seem to think that customers are easily replaced so existing customer goodwill isn't needed.

[Fernando]

04:40 PM on 10/26/2011

Oh, please, I'm more willing to believe Hastings is secretly working for Blockbuster than I am about the "if you don't like it take a hike" comment. Give me a break.

The problem wasn't Netflix being outright nasty to their customers, it was that they ignored us completely.