Consumer Wrath Hits Netflix Hard

16.09.2011
Hell hath no fury like a consumer scorned--a fact since it restructured its pricing in July. One million consumers have bailed since the restructure, and the company's stock price is falling precipitously.

Netflix released its membership projections for the third quarter, which wraps up at the end of September, on Thursday. According to the numbers, Netflix will be down one million subscribers--24 million, down from 25 million, which is a significant drop of four percent. Most of the losses are members with DVD-only accounts (three million to 2.2 million), but a whopping 200,000 streaming-only members also bolted.

News of the reflects Netflix's stock. When Netflix first announced the restructure in July, its stock was worth almost $300/share. Today, it's selling for less than $160.

Despite the losses, Netflix is . "Despite the guidance revision, we remain convinced that the splitting of our services was the right long-term strategic choice," the company said in a [pdf]. "We know our decision to split our services has upset many of our subscribers, which we don't take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come."

While everyone expected once the price increases took effect, the magnitude of the losses reveals an unsettling disconnect between the company's management and its customers. Netflix's management thought the price hike would only affect "hybrid" users--users who use both Netflix's DVD-rental service and its streaming-video service.

In fact, hybrid users appear to be remaining steady at 12 million subscribers. It was the DVD- and streaming-only areas that took the biggest hits. This kind of miscalculation puts into question the company's ability to forecast its future health.