A key element of running any sales-based business is balance, with the company expected to charge enough to be making a valid profit, but not so much that it drives customers away. Netflix, one of the most well-known companies in the world, do not seem to be taking notice of this unwritten rule, and have literally paid the price for raising subscription fees by up to 60% .
Since the price increase, customers of Netflix have voted with their feet, losing a reported 4% of their customer base since the move, with more and more subscribers defecting from what has for a long time been regarded as the undisputed kingpin of online streaming and movie rental in the US.
While the destination of these disgruntled consumers may differ (with Amazon Prime, Walmart-owned Vudu, and new Dish Network acquisition Blockbuster amongst the most high-profile of Netflix’s rivals), Netflix management have predicted that the end of September will see the company registered with 600,000 less customers in America than at the same point in June, only the second time in a dozen years (and first time in five) that they have seen a drop between quarters, and by far the largest of any customer decrease they have ever suffered.
With shares dropping up to 40% in value since the announcement of higher prices in July (causing an estimated $6 billion cumulative loss for shareholders), and partners (such as Starz Entertainment) backing out of content licencing deals, it seems as though the company is now collapsing in on itself, compounded by a recent decision to stop multi-streaming (more than one download at a time).
Michael Pachter, an official market analyst for Webush Securities, said of the declining situation for the streaming giant: “Netflix isn’t looking like it’s as good a deal because their prices are getting higher and their content isn’t getting any better. It’s like they have taken the beef away from the buffet.”
Regardless of what everyone else is saying, Netflix yesterday came out to strongly defend their decision to raise prices (based on a move to prioritise their online streaming offerings), claiming that they are making ’the right long-term strategic choice’. At the rate customers are dropping them, will Netflix even be able to see a ‘long-term’?
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