Customers Outraged at New Netflix Pricing, Investors Giddy
July 14, 2011 12:30 PM
comment(s) - last by
The price hike and change in service plans are not sitting well with many Netflix customers, but Netflix already knew this would happen
Two days ago, Netflix announced that it would
change its pricing and plans
associated with its DVD rental and video streaming services. These changes include separating DVD rental from video streaming entirely, charging $7.99 for one or the other. For both, the cost is $15.98 (the current price for one DVD out at a time and unlimited video streaming is $9.99).
The price hike and change in service plans are not sitting well with many Netflix customers, but Netflix
already knew this would happen
. In fact, one day before announcing these plans, Netflix told customer service representatives to be prepared for angry callers.
Today, the company even increased the number of personnel in the department to handle the amount of phone calls they've received. "Hundreds" of Netflix employees have been answering phones, and this still caused some callers to have to wait to speak to an employee. The sales representatives have said that many of the calls have been "emotional."
"We tested, we researched, we analyzed," said Netflix spokesman Steve Swasey. "We knew what the reaction would be. We are not surprised. We knew that there would be some people upset by the service and with the price being adjusted."
According to Rich Greenfield, a Wall Street analyst with BTIG Research, Netflix employees have not been giving callers satisfactory responses through the day. Greenfield tested how Netflix's service department was handling the flood of calls by making over 35 calls over a two-hour time period, and said that Netflix employees simply tell customers (who threaten to cancel their subscription) to wait to cancel until September when the new plans/pricing takes place.
"There was simply no promo or 'save' technique to offer us a discount to
retain our business
," said Greenfield. "This would appear to illustrate that Netflix is simply not concerned with the prospect of losing customers."
In addition, Greenfield said he waited on hold for about 9 to 15 minutes while making these calls.
While customers are up-in-arms,
investors are salivating
at the Netflix price rise. According to Ingrid Chung, a Goldman Sachs analyst, the higher prices will make up for the cancellations by "driving customers toward more profitable Netflix plans."
"Gross margins should benefit as we believe that the majority of lower-priced (subscribers) were less profitable for Netflix," said Chung.
Chung also mentioned that "lower-priced subscribers" may be drawn to the streaming-only service as well, which could prove to be a successful shift.
Netflix shares increased three percent yesterday after the announcement of the new plans.
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RE: They guessed wrong
7/14/2011 1:37:32 PM
Wrong. Streaming is currently more profitable than DVD because the licensing costs are lower for Netflix because movie studios didn't take streaming seriously when Netflix proposed the original contracts.
Now that the studios have seen the demand for electronic distribution (they must have some serious effing blinders on to just now be noticing consumers want this feature...), expect Netflix's licensing costs to skyrocket. One article estimate (probably pulled out of the author's ass) a 10-fold increase in Netflix's pricing on those contracts... but either way the license pricing is going up.
RE: They guessed wrong
7/14/2011 2:03:42 PM
Combine that with data caps that will come from ISPs like Comcast and Time Warner who want to sell their own product and I can see Netflix getting really spendy.
RE: They guessed wrong
7/14/2011 2:18:50 PM
Agree. With the studios having smelt blood, they are trying to extract maximum costs from Netflix which in turn makes Netflix increase the price to its customers.
I remember that HBO senior official was saying something like "NFlix streaming prices are a joke! They are too cheap. Our customers perfer exclusivity even if expensive".
So going forward I am guessing with the new contracts, the licensing costs have sky rocketed. Add to it the hosting to serve to millions of connected devices including Media Players, Smartphones, Blu-ray players and with ISPs wanting to have a share of the revenues generated thru heavy traffic, I can understand that the so called "cost benefit" over the mail DVDs has been significantly reduced.
I am ambivalent about the price hike. Currently I am on a Account hold(2DVD + UL streaming variety) till mid september and have not decided what I will do. Comparing against other on-line streaming services, I find Netflix to be far cheaper inspite of the lack of latest movies. If Amazon is able to get equivalent titles (in the future) then may be the PRIME + streaming is something I can think about. Add to it NFlix has absolutely no commercials while Hulu+ has I cannot see the value the latter offers.
Well if Netflix does the following
a) Expand the movie titles.
b) Add sub-titling as a option and make it available even to non-PC devices.
c) Improve the sound quality vis-a-vis blockbuster instant videos
I would not mind continuing with them. I have a Samsung BDP1690 (while it is a poor QC device, I have to un-plug the device after few days so that it behaves properly). It can access 4 internet streaming services
I have only used BB feature to view the various trailers. I have it connected to my Pio VSX-520 5.1 HT system with. I find that for the same amplitude level, the sound is louder and more richer in the BB Trailers and the picture little better too.
But the reason that they gave in the blog is soooo...o lame.
They should be frank in saying the obvious in a diplomatic manner.
" Hollywood basically wants to extort us and our customers to provide the streaming service."
RE: They guessed wrong
7/15/2011 10:08:25 AM
Don't believe the Netflix lies.
They have Hollywood by the short and curlies.
Hollywood paid them an enormous amount of cash to just 'delay' when they would offer movies. If a studio asks for more money in licensing fees, Netflix could just as easily not license ANY of the studio's back-catalog. They have enough users that they can set the terms for licensing.
"It looks like the iPhone 4 might be their Vista, and I'm okay with that." -- Microsoft COO Kevin Turner
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