Down Stream: Netflix's New Prices Lose Customers
TV customers' anger at Netflix, once perceived as the "anti-cable" company, has now cost the company some real business -- and a hit on its stock price.
Netflix says it expects to lose 600,000 subscribers -- as well as cutting its estimates by 1 million customers -- all due to its radical pricing changes announced in July.
As a response, Netflix shares dropped a massive 19%, closing at $169.25 on Thursday.
Its pricing plan went into effect this month, eliminating its all-you-can-eat-formula -- which included DVDs rentals by mail and its streaming video. Now U.S customers can have a streaming-only plan for $7.99 per month -- and/or separately -- a DVD plan starting at $7.99 per month for one disc out at a time.
Previously, Netflix expected 25 million total U.S. total customers for the third quarter of this year -- 10 million streaming-only, 3 million DVD-only and 12 million for both plans (22 million in total streaming customers).
Now the company estimates 24 million total customers -- 9.8 million streaming-only, 2.2 million DVD-only and 12 million on both (21.8 million total streaming).
Writing to Netflix shareholders on Thursday, CEO Reed Hastings and CFO David Wells said: "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."
Analysts have wondered whether this could be a turning point for the streaming video/DVD rental company.
Netflix's rapid growth fed on its ability to position itself as the "anti-cable" company for viewers who were fed up with high prices for TV programming. But in a weakened economy, price-sensitive entertainment consumers show no loyalty to any new video services, say analysts.