Customers Outraged at New Netflix Pricing, Investors Giddy
July 14, 2011 12:30 PM
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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: who cares
7/14/2011 2:00:54 PM
Simple minded maybe, but also pointing out that even with the new price the deal is better than what was available even a few years ago for most people.
I can stream three movies per month now and have paid less than what I did a few years ago renting the same three movies from Blockbuster or Movie Warehouse and I don't have to worry about a wasted trip there to find out it is out of stock or calling ahead to reserve a copy for the night. For everyone else here maybe this is some huge increase in their entertainment budget, but for me even if I got the streaming and DVD option I would still be spending less than I used to if I rented a couple movies each week.
I do think it will eventually go higher on pricing. The MPAA and the movie studios would love to make as much from each viewing of a movie as they do at the box office or each sale of a DVD so they will push and push until they find the max they can gouge the consumer for. Netflix is just getting ahead of the curve on future pricing increases they know are coming from the studios. No one else is offering a better service and pricing because I imagine they would not get the pricing contracts that Netflix has had for so long.
RE: who cares
7/14/2011 2:52:25 PM
Again on an entertainment per dollar its not bad. But its a bad and whether or not you mind the price hike an evil practice to price your competitors out of business and then start hiking up the prices.
"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation
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