Netflix Defends Price Hike As Price Of Doing Business

by Wayne Friedman, Sep 21, 2011, 6:01 PM

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Netflix's recent and dramatic business model changes -- price increases, branding shifts -- were made because of a quickly changing marketplace, say company officials.

"There have been too many examples in history of companies that don't move fast enough to position their brands... for what we feel is the long-term marketability for Netflix," says David Wells, chief financial officer for Netflix, speaking at Goldman Sachs Communacopia conference. "We have a long history of having been very transparent with our consumers... We'll take our licks as we get them."

What were those changes? A drastic number of new consumers and even its hybrid DVD-mail order/streaming service.

Netflix effectively increased its monthly price to $16 a month from $10 -- a 60% rise for many of its consumers starting in September. It did this by separating its DVD-mail order and streaming video business. The DVD business is now called Qwikster; the streaming video division, TV/movies, will retain the Netflix brand.

Wells says the DVD-only business, while still generating a lot of revenue, suffered a bit because of the new digital technology consumers were using. This longtime Netflix business has found it increasingly difficult to get resources and attract talent.

Thus, separating the two businesses was the way to go. "It's the larger opportunity of streaming," says Wells. "We have already seen declines in DVDs. It was our feeling that this business is mature."

Netflix witnessed a net drop of 600,000 consumers in the third quarter, due to the price change announcement in July. "From what we see, word of mouth did have a impact. The news cycle certainly didn't help us." Still, Wells says, not much has changed for the company: "We are well-positioned; we are still the market leader."

What about creating more a la carte business structure for movies/TV -- or video on demand? Wells says: "It's a low-margin business. We aren't interested in that."

When asked whether Netflix would be better served to repair consumer relationships by lowering prices -- even for the short term -- Wells said this amounts to "kicking the can down the road." He said it would be a greter help to consumers to spend more on getting better TV and movie content.

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0 comments on "Netflix Defends Price Hike As Price Of Doing Business".

1. Pam Alvord from Kilgannon
   

   commented on: September 22, 2011 at 8:53 a.m.

   While Netflix may have had their business reasons for their recent actions, they have broken almost every Marketing 101 rule. For more on the marketing perspective, check out http://bit.ly/reXtQ4
   

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