Woochifer
10-24-2011, 04:36 PM
At almost breathtaking speed, Netflix is collapsing. Years from now, the 2011 version of Netflix might be taught in business classes as a case study for how to destroy a company by pissing off your best customers.
The latest numbers aren't pretty. During the most recent quarter, Netflix had a net loss of 810,000 subscribers -- about 200k more than Netflix had projected. The actual number of cancellations is likely higher, because of new subscribers joining.
Netflix stock plummets as more subscribers leave - latimes.com (http://www.latimes.com/news/mobile-la-cotown-netflix-stock-plummets-m,0,780030.story?track=rss)
Netflix severely underestimated the backlash that their harebrained scheme to decouple the streaming/DVD mailer services, and split Netflix into two companies would create. It took Netflix more than a decade to build up its brand equity, reputation, and customer loyalty. In one quick succession, they've pretty much destroyed it. And their stock price lost more than half of its value over the summer, with another 20% down the crapper today after the quarterly results were announced.
Just a year ago, Netflix was flying high, having seen its subscriber numbers explode after successfully placing the Netflix app onto millions of gaming consoles, set-top boxes, and Blu-ray players. With huge growth in tablet and other mobile platforms on the horizon, Netflix seemed invincible.
But, as I first posted back in April (http://forums.audioreview.com/news-rumors/netflixs-business-model-isnt-sustainable-seeking-alpha-article-36434.html), the early cracks in Netflix's armor were already showing. By that point, their content costs were increasing way faster than their subscriber count -- a very clear danger sign, since that type of trend cannot hold up indefinitely. It seemed to me at that time that tiered-pricing was inevitable. But, Wall Street had not yet caught on, and the stock price held up.
What happened since then?
- Netflix continues to see its costs escalate, except that now their subscriber growth has stopped.
- They're about to lose content from Disney and Sony.
- Viable competitors in the streaming space are beginning to emerge, as Amazon Prime and Blockbuster/Dish secure content deals and prepare to introduce improved platforms.
Netflix was already facing some difficult challenges, but at least they had loyal subscribers and continued growth. But, with their self-inflicted wounds and pissed off subscribers, now they're in a nosedive and really need to prop things back up in a hurry.
The problem is that they took their subscribers for granted. Going to tiered pricing, and explaining that it's necessary because of rising content costs would have been a more honest and fair approach. Instead, they chose to penalize their existing subscribers, and force them to choose between diminished service or pay 60% more for the exact same product.
Even with this debacle, it's not too late. Netflix still has the biggest subscriber base among the video streaming providers, and they will debut their first original drama series, House of Cards, next fall. But, with much of their goodwill eroded, Netflix has minimal margin for error moving forward.
I can tell you that my wife was so pissed off that she cancelled our Netflix streaming, and has moved onto Amazon Prime. She kept the DVD mailers, but might cancel that too once her current queue draws down.
I liked Netflix streaming, but the video/audio quality was hit and miss. HBO Go has been a decent streaming substitute (for one thing, I can catch up on HBO series that aren't available on Netflix streaming), but I don't like having to plug my computer into the TV. Once HBO Go releases its rumored app for the PS3, then I might not think about Netflix at all.
The latest numbers aren't pretty. During the most recent quarter, Netflix had a net loss of 810,000 subscribers -- about 200k more than Netflix had projected. The actual number of cancellations is likely higher, because of new subscribers joining.
Netflix stock plummets as more subscribers leave - latimes.com (http://www.latimes.com/news/mobile-la-cotown-netflix-stock-plummets-m,0,780030.story?track=rss)
Netflix severely underestimated the backlash that their harebrained scheme to decouple the streaming/DVD mailer services, and split Netflix into two companies would create. It took Netflix more than a decade to build up its brand equity, reputation, and customer loyalty. In one quick succession, they've pretty much destroyed it. And their stock price lost more than half of its value over the summer, with another 20% down the crapper today after the quarterly results were announced.
Just a year ago, Netflix was flying high, having seen its subscriber numbers explode after successfully placing the Netflix app onto millions of gaming consoles, set-top boxes, and Blu-ray players. With huge growth in tablet and other mobile platforms on the horizon, Netflix seemed invincible.
But, as I first posted back in April (http://forums.audioreview.com/news-rumors/netflixs-business-model-isnt-sustainable-seeking-alpha-article-36434.html), the early cracks in Netflix's armor were already showing. By that point, their content costs were increasing way faster than their subscriber count -- a very clear danger sign, since that type of trend cannot hold up indefinitely. It seemed to me at that time that tiered-pricing was inevitable. But, Wall Street had not yet caught on, and the stock price held up.
What happened since then?
- Netflix continues to see its costs escalate, except that now their subscriber growth has stopped.
- They're about to lose content from Disney and Sony.
- Viable competitors in the streaming space are beginning to emerge, as Amazon Prime and Blockbuster/Dish secure content deals and prepare to introduce improved platforms.
Netflix was already facing some difficult challenges, but at least they had loyal subscribers and continued growth. But, with their self-inflicted wounds and pissed off subscribers, now they're in a nosedive and really need to prop things back up in a hurry.
The problem is that they took their subscribers for granted. Going to tiered pricing, and explaining that it's necessary because of rising content costs would have been a more honest and fair approach. Instead, they chose to penalize their existing subscribers, and force them to choose between diminished service or pay 60% more for the exact same product.
Even with this debacle, it's not too late. Netflix still has the biggest subscriber base among the video streaming providers, and they will debut their first original drama series, House of Cards, next fall. But, with much of their goodwill eroded, Netflix has minimal margin for error moving forward.
I can tell you that my wife was so pissed off that she cancelled our Netflix streaming, and has moved onto Amazon Prime. She kept the DVD mailers, but might cancel that too once her current queue draws down.
I liked Netflix streaming, but the video/audio quality was hit and miss. HBO Go has been a decent streaming substitute (for one thing, I can catch up on HBO series that aren't available on Netflix streaming), but I don't like having to plug my computer into the TV. Once HBO Go releases its rumored app for the PS3, then I might not think about Netflix at all.