Friday, Apr 24, 2015

Netflix Price Experiment: Investors vs. Customers

We are separating our unlimited streaming plan from our DVD plan offerings. The streaming-only plan will remain at $7.99, while we now offer DVD-only plans starting at $7.99. Additional details regarding changes to our plans can be found on our blog: http://bit.ly/NetflxBlog

Are you kidding me? I just got done reading blogs “Do You Really Give a Sh*t About Your Customers” and I closely follow one of our own customers as they brand customer experience with #cxo on Twitter. Didn’t you know…the consumer matters? So Netflix, why are you lighting this fire?

I have heard a rumor that Netflix needs to seperate their users for contract negotiations with the movie studios and to push users toward streaming. This seems plausible, but isnt’t there a better way?

You have to establish value early on if you want people to try your service and then continue to use it. If you’re able to find that pricing point where consumers feel like they’re getting value and producers are making money, good for you. I thought Netflix was there. I was an avid Redbox user and made the switch to Netflix because I thought it offered a great value. The value was in its convenience, flexibility and larger selection of movies. When I first heard of their new rate plan, I thought, awesome got in before the price hike. It’s standard practice these days to reward your pioneering customers. Cell phone companies let current customers keep their unlimited plans after they stopped offering them. I was shocked that they were going to implement this to all customers for several reasons.

  • Nobody likes a price hike, much less 60%.
  • If you’re going to even be insane enough to try, you will at least have to validate some sort of value. Thats what our business is based upon. The movie selection is actually dwindling as studio contracts come up for negotiation. Sony films are no longer available for online streaming, which include Salt and The Social Network. The online streaming is also mostly old content to begin with. It was nice getting a relatively new disc in the mail.
  • A three-month pricing extension for current customers creates no positive emotional response at all, in effect stirring a negative response that is spreading like wildfire(Social Network Response)
  • Netflix announced a week ago they were expanding into 43 countries this year. As a customer do you want to give Netflix more money so they can provide streaming video to people in other countries? I don’t think your charitable donation will be tax deductible. Netflix is obviously trying to cover expenses as the company is looking at a loss of $50 million to $70 million in the second half of the year with overseas expansion. Your stock is up 65% year over year that’s a nice return. Can you reward shareholders as well as customers?

What Netflix needs to do:

  1. Not be Blockbuster: Being a bully doesn’t work
  2. Apologize and admit they were wrong: Do you really want to gamble with your future by seeing how many people will leave September 1st?

I understand Netflix is the small fry competing with Google and Amazon in terms of market cap, but they have the niche customer base. They will never be able to get those customers back if they lose them at this point. They all are also all closely linked together now since Netflix is heavily integrated into the social media space. I also acknowledge the pressure from movie studios in contract negotiations. Netflix, however solves a pain point for movie studios, providing an alternative to piracy. Netflix accounts for 30% of all broadband traffic compared to 18.8% for P2P file sharing which is actually decreasing. By making movie access affordable and of high quality they attract more paying customers. Netflix is also able to monetize garbage movies that nobody would ever pay for individually. If they can’t propose value to the movie studios, they are in trouble.

I can see the next big lockout, Netflix vs. Hollywood. They have a big pie to split up and there is too much greed to go around.  All I know is that if we go back to Blockbuster pricing the same thing will happen: Investors and Customers will lose!

 Sources: Netflix is doing its job to reduce piracy in North America
Can Netflix Swim With The Sharks And Survive?
Netflix expanding into Latin America


 

 

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