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.
This article is over a month old, voting and posting comments is disabled
7/14/2011 3:25:48 PM
To me the only thing Netflix had going for it was their incredible value. I was happy that Netflix beat Comcast when Comcast wanted to charge us more for using their connection to use Netflix, but now my connection through Comcast sucks in the evenings due to increased traffic (partially due to the high number of HD Netflix streamers) and I have to pay more to Netflix?
This is the definition of a "Lose Lose" situation for all of us. Screw their shareholders.
"What would I do? I'd shut it down and give the money back to the shareholders." -- Michael Dell, after being asked what to do with Apple Computer in 1997
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