Netflix Experiences 10 Percent Drop Follow Spike in Prices
Netflix Inc is suffering a 10 percent decline in stock value due to customers’ displeasure with their recent hike in service prices.
The company was warned their subscriber growth would wane by the third quarter, and it is now believed up to 2.5 million people are likely to cancel their Netflix service altogether, or pay for streaming video or DVDs in the mail - but not both services combined.
Netflix added 70 percent more subscribers this year than they did last year. Also, the video rental giant’s second-quarter earnings rose 52 percent to $788.6 million, although it fell short of the average analyst estimate of $791.5 million, according to Reuters.
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Two weeks ago, Netflix announced to customers that it would sell online video and DVD rental services separately. Starting September 1, existing customers who want both entertainment services will have to pay $16, up from the formerly bundled package that cost $10.
The 60 percent price increase is the most radical change in pricing since the company starting mailing DVDs 12 years ago. The prices of other popular bundled entertainment plans will rise between 20-33 percent also.
Netflix foresees many customers picking between the DVD or streaming plan to avoid a higher fee that comes with subscribing to both plans. The company also anticipates many customers may decide to delete the service altogether, and thousands of disgruntled Netflix subscribers have sounded off on the company’s blog site as well as on Facebook.
In a letter to shareholders, Netflix said: “We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we’re working hard to further improve the quality and range of our streaming content.”
The third quarter forecast for the company is that it will have about 25 million total U.S. subscribers – barely more than the current 24.59 million currently now has. Netflix’s fourth quarter will represent the full effect of the price changes, and customer growth is expected by then. The fourth quarter could be “our first billion dollar global revenue quarter, driven by strong U.S. performance,” Netflix says.
