Customers Irate Over Netflix' Price Increase

by Thom Forbes , July 13, 2011

Netflix yesterday implemented that old marketing adage, "If it ain't broke, gouge the customer." At least that's the way it initially seemed when I was served with an email informing me that to continue the same service I'm getting now come Sept. 1 -- unlimited DVDs and unlimited streaming for $9.95 -- I'll have to pay roughly 60% more, or $15.98 a month ($7.99 + $7.99). You can also get either service independent of the other for $7.99. The price changes are already in effect for new customers.

The upside? "You don't need to do anything to continue your memberships for both unlimited streaming and unlimited DVDs." And so, like thousands of others, I immediately went to Google and typed in "Netflix alternatives."

Alas, concludes PC World's Paul Suarez after looking at similar offerings from Amazon Prime, Blockbuster by Mail, CinemaNow (Best Buy's service), GreenCine, Hulu and Redbox: "It's hard to argue with Netflix when it says the new pricing scheme is a bargain. Its prices are cheaper than a lot of the alternatives and offer quite a bit more selection."

Nonetheless, many of the stories about the announcement, which came in both an email to current customers and as a post by marketing vp Jessie Becker on the company's blog, refer to the irate responses by customers like me to the post, as well as on Facebook and Twitter.

Writes the Los Angeles Times' Ben Fritz: "Reactions to Netflix's biggest-ever price increase were swift and overwhelmingly negative. More than 10,000 people had responded to the news on Netflix's Facebook page by late Tuesday, nearly all of them critical."

The real story here may be, as @cenedella put it on Twitter this morning, "#Netflix is totally worth $16/month, but jabbing thru 60% price increase with corporate doublespeak seems even more totally off-brand."

Netflix founder Reed Hastings decided some time ago that the future of his business was in streaming, most stories point out. Initially, the company was able to cut favorable streaming deals with several Hollywood studios but everyone expects negotiations in the future to be tougher. At the same time, perhaps because of the scarcity of recent blockbuster releases through streaming, the DVD business has evidently remained stronger than the company anticipated. So it has reassessed its position of offering the mail service for about a $2 per month "premium."

"Reflecting our confidence that DVDs by mail is a long-term business for us, we are also establishing a separate and distinct management team solely focused on DVDs by mail, led by Andy Rendich, our Chief Service and Operations Officer and an 11-year veteran of Netflix," Becker writes.

The move is "the latest step in a long-term transition toward becoming a next-generation premium television business," Arash Amel, a research director for IHS Screen Digest, tells the New York TimesBrian Stelter and Sam Grobart. He believes that monthly prices will go up as Netflix's growth rate slows and licensing fees rise.

But in a story carrying the hed, "Netflix Plays Down DVDs," Frost & Sullivan analyst Dan Rayburn tells the Wall Street Journal's Nick Wingfield that the move "makes no sense." He believes "it will push people like him who pay $9.99 a month for Netflix streaming and DVD services -- often leaving a red DVD envelope from the company unopened for months -- to switch to the company's $7.99 streaming-only plan." Rayburn points outs that customers can rent DVDs from Coinstar's Redbox kiosks for $1 a night when they can't find a title on Netflix's streaming service.

Also of interest to this audience is a comment on Larry Kramer's Vatornews blog Monday: "The networks are also concerned that Netflix' existing model -- which calls for no advertising -- could cause problems for traditional distributors who run ads because consumers could come to prefer programs with no ads. That could drive viewers away from the advertising model. The amount people will pay for that privilege, however, is still unclear and may always be a moving target."

Indeed, lots of people this morning are no doubt saying, "catch us if you can." It will be interesting to see if Netflix, once again, does.

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10 comments about "Customers Irate Over Netflix' Price Increase".

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Jeffery Beliveau from PFC, July 13, 2011 at 9:30 a.m.
Dan Rayburn's comment is almost a transcript of the conversation my wife and I had over this change. It would be interesting to see how many other MediaPost readers also plan to drop the DVD service and pay the lower streaming only fee.
Could this bad decision end up actually hurting Netflix revenues?
It certainly hurt their reputation from my perspective - a 60% increase when unemployment is over 9% seems like someone a Netflix has a tin ear. I continue to look at ways to reduce my family budget, not add to it.
Reply

Jonathan McEwan from MediaPost, July 13, 2011 at 10:03 a.m.

I think it's more of a gentle prod toward the much less costly for Netflix streaming only service. Also, if people out there are like me, they're sitting on 2 DVDs they never watched because it's all about streaming now. I get my Netflix through Apple TV, so I welcome the lower rate for streaming the lower-end Netflix content. If they don't have it, 4 bucks more and I watch it through iTunes now, not a few days later. Win win all around.

Noah Wieder from SearchBug, Inc., July 13, 2011 at 10:24 a.m.

The digital age is amazing and treacherous for big business. When I received that email I immediately went to the net fix web site in disbelief.

I'm right there with Jeffrey, I informed my wife that we'll be dropping the net fix DVD service.

When we first started using Netflix there were no Coinstar Redbox kiosks in my neighborhood, now there are 2 within walking distance and over a dozen within a 2 mile radius.

To justify $8 monthly on DVD service alone I would have to be too diligent about watching and returning the movies. Now I'll just pickup a movie when I want one at a local redbox and I'll probably only spent $2 - $4 extra verse the $7.99 Netflix wants for DVD service now.

At a $2 premium over the streaming service I was fine with not having the most recent releases available or waiting a day or two to get a movie. Now, it's going to save me money and give me a better selection to drop the Netflix DVD service.

Had Netflix made it $7.99 for streaming and $4.99 for 1 out at a time unlimited DVD service I would have probably been able to justify keeping both. I think they will lose tens of thousands if not hundreds of thousands of DVD customers over this.

I'm confident the Netflix number crunchers and bean counters ran their spreadsheets, algorithms, and models before making such a huge impact on their business. It's just not the Netflix I've come to enjoy using nor is it the Netflix I'd be proud to be associated with as a shareholder.

Scruffy Curmudgeon from Boston University, July 13, 2011 at 11:43 a.m.

The miscalculation made by Netflix management goes to the value associated with the downloadable streamed media. In fact, they have failed to provide anything close to 10% of the currently available DVD titles and for the most part the streamable titles run from documentaries to older TV shows and older films. The unified 3-DVD&unlimited was right at the threshold of value but this change in pricing policy clearly has pushed many consumers passed their tipping point on threshold, myself included.

Jeff Rutherford from Jeff Rutherford Media Relations, LLC, July 13, 2011 at 5:16 p.m.

Wow, the anger at Netflix, from people ostensibly in the media biz, is surprising. Everyone knew that this was coming eventually - regardless of unemployment.

The anger should be directed at the out-moded, ridiculous entertainment business model that is forcing Netflix's hands on this issue. Netflix has been put over a barrel in every negotiation and re-negotiation with film and content companies in the last 18 months. Money to pay for those deals has to come from somewhere.

You've got entertainment companies demanding yesterday's pricing in a world of digital delivery. They're clinging to pricing models that doesn't seem to take into account - maybe if we lower our pricing model, we'll get more people accessing our content - and we can make up money in volume vs. a high per-usage fee.

Netflix is charging ahead - trying their best to build a video content model of tomorrow (every episode of every show ever broadcast available in one click) - but they're having to pay through the nose to deliver that service.

I'll happily pay the increase. I still watch lots of DVDs from Netflix, and their streaming service - for kids content - has been pretty life changing.

Paula Sykes from Sykes Research Consulting, July 13, 2011 at 6:10 p.m.

Dan and Jeffrey, I'm laughing out loud right now because I had the exact same conversation with my friends today (as I'm sure so many other did too). I will be dropping the DVD by mail service I currently have and moving to streaming only. I too am a block away from a Redbox so it really makes no sense for me to pay double for the same service I had previously (DVD + streaming). That was pretty much the consensus among my friends as well. I too wonder what impact this will have on their customer count and if those who choose to stay and pay more will balance out the attrition.

David Ricketts from N-A, July 14, 2011 at 9:04 a.m.

Got to love a media commentary site that can't code for social media: share this story on Facebook and the headline becomes the blurb about mediapost while the actual headline ends up in the place of the blurb.

Getting back to the story itself, I see Redbox as the viable alternative, but how many people will actual change their behaviour????

Steven Graff from Bloofusion Inc., July 14, 2011 at 6:27 p.m.

I am sure they did the math, that is the internal mantra at Netflix. In the near term lost subscribers will surely be more than compensated for by the revenue from increased pricing. But when it comes to fungible numbers like brand equity and suppression of growth due to a tarnished brand they may have miscalculated. The very public comments from their VP of Communication, Steve Swasey and the wording of the initial customer email do little to anticipate, assuage or stem subscriber anger.

There was not even the pretense at attempting to tap into brand loyalty. Imagine how different the consumer response might have been if the email had started with something like: "Dear subscriber we know times are tough and how you allocate your entertainment budget carries with it some tough choices. Unfortunately recent licensing and operations cost increases have put Netflix in a position where we can no longer offer... (continued) ...We have created a special page where you can select the subscription plan that you prefer. Don't worry if you are not able adjust your plan by September 1, we will automatically migrate your subscription to our least expensive offering until you reset your preference."

Unfortunately, Mr. Swasey's public comments demonstrate no empathy, gratitude, or loyalty to the 23 millions NA subscribers, some who have been on board for nearly a decade and through their evangelism and referrals have as much ownership of the Netflix brand as does he.

The stock market may love this move, and Netflix may still represent the best price point in this sector, but when you see employee's leaking Mr. Swasey's direct and mobile numbers to facebook and twitter and thousands of reposts by irate subscribers with directions to "post in on your wall so it can't be deleted" your brand is in some pretty hot water.

Mike Mohlman from Family Kinda Guy, July 23, 2011 at 6:07 a.m.

I've read a lot about this, and pretty much am of the opinion, NetFlix owes no one anything. It's hard to make an argument about raising prices when so many people are unemployed, because frankly, shouldn't these people be doing something else than sitting around watching DVDs?

Also, how can unemployed people afford broadband internet when they're out of work? The company is still cheaper than most alternatives, and is a flat rate, while other services charge per rental.

Lastly, NetFlix has gone through great expense to get their software on as many hardware devices as possible, your bluray player, your game system, and even some web enabled televisions. In contrast, Blockbuster On Demand charges $99 for their hardware, and their rentals start at $1.99 each movie.

I have never been a Netflix subscriber; really don’t plan on becoming one either. Between my job and my daughter, I really don’t have time to sit around and watch movies. With that said, the people who are complaining about the price increase are also most likely the ones paying $6 for a cup of coffee at Starbucks.

Of course, this is my opinion, I could be wrong.

Michael Kane from CellPig.com, July 28, 2011 at 3:03 p.m.

The fact is that Netflix could have never operated at the price point that they were at and its unfortunate that this is putting such a bad light on the company. They should have planned better, but they didn't. I wish there was more focus on the fact that it's only a few bucks, rather than that horrible 60% figure. It will truly be sad if such a great company, with an incredible service, gets broken down over this price increase.

http://cellpig.com/blog/information/netflix-dominates-movie-streaming-price-increase-follows/