Just what is going on with Netflix?
Friday, November 4th, 2011
It has been quite a turbulent year with the DVD and streaming giant. Last week saw the release of their Q3 reports, which followed a rocky couple of months of price hikes, confusion, psuedo-startups and backtracks.
So just what is going on with Netflix? How did CEO and Founder Reed Hastings go from Fortune magazine’s ‘business- person of the year’ just 12 months ago to this? To be honest, the first six months of 2011 started promisingly, with stocks up 40% and the ever-growing subscriber base topping 25 million.
However, the future of the on-demand/rental of movies lies in streaming, and it will be the quality of instant content that will affect consumers’ habits and future contributions. 2011 has seen an aggressive expansion, in part as response to user feedback, and some of the ever-changing deals announced include… Addition of CBS Content (February), Extended Deal with 20th Century Fox, First Exclusive TV Series Commissioned (March), New Partnership with Viz Media, Marvel Content Added (April), Miramax Content Deal Announced, More Viacom Content Added (May), New Agreement with Discovery Communications (September), Extending and Expanding Disney-ABC Agreement, New NBC Universal Content (October).
The downside is that studios keep demanding higher fees for their content, and can do so now that other video-streaming websites are offering competition (including Hulu and Amazon). Then come the costs of moving into new territories. In July, Netflix announced they would be expanding into 43 countries. The new markets include Mexico, Central America, South America and the Caribbean, and will give those members access to Netflix content in Spanish, Portuguese or English. Add in the launching on iPad and Android platforms and you have a sharp incline in costs, prompting Netflix to alter their prices in the second half of the year.

It was the steepness of the increase that first riled customers and shook shareholders. In July Netflix announced that the streaming + 1 DVD option that had cost $9.99 would increase to $15.98 per month. Loyal customers were furious at the 60% hike. Last week, the confirmation came out that subscribers had left in droves; the Netflix user base decline by 800,000 people in just 3 months. This caused further instability in stocks, resulting the new current price of just $92 per share, down from a high of $299 in July.
As if all this wasn’t enough, there is the Qwikster debacle. Splitting the DVD rentals from streaming and replacing a strong brand with something that sounds like a Chocolate shake product didn’t go down too well with customers either. Whilst there would be room for that to expand into video game rental, and a large market is still mostly up for grabs there, the annoyance of having two websites and two simultaneous accounts was well vented (also very well ridiculed by this Oatmeal comic strip). Ultimately, the Qwikster brand was scrapped less than one month after it was announced, prompting the rather awkward question, ‘Is Netflix the next AOL?‘
I think that is a little premature; we can now write Qwikster off as a very bad decision, whilst the price increases were a necessary step, albeit to steep and handled badly. In the long run, Netflix’s profits will level off, with the lost revenue from those migrating subscribers being balanced out by those who still see the value (and there is great value) in a near infinite amount of TV and movie options available for one quarter the price of a cable provider.
Do you currently use Netflix? Are you one of the ex-subscribers now seeking other alternatives? Please share in the comments…
by Lee Jarvis.
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