It turns out raising prices on customers is a bad idea, after all. Who knew? Not Netflix, apparently, who announced today that it expects a total of 1 million US customers — 4 percent of its subscriber base — to cancel their subscriptions because of the company’s recent price hike.
Netflix had expected a total of 25 million US subscribers for the third quarter, up from its second quarter total of 24.59 million. That number is now down to 24 million. (Netflix also has about a million non-US customers.)
The bad news came in the form of a letter to its shareholders. At the time of this writing, Netflix’s stock price had plummeted more than 18 percent in today’s trading. Netflix said in the letter that 800,000 subscribers have cancelled so far.
For those of you unfamiliar with the situation: Netflix announced in July that it would no longer offer a plan with both streaming and one-DVD-at-a-time for $9.99 per month. Instead, customers would have to pay $7.99 per month for streaming, plus an additional minimum of $7.99 if they wanted DVD rental — an increase of about $6, or 60 percent, per month for identical service.
News of the price hike caused immediate outrage among customers. Despite this, some analysts called it a good move, if not a popular one, since Netflix’s future is presumably in streaming, not DVD. This prediction may turn out to be true, at least down the road. But for now, it looks as though Netflix’s move to become a streaming-only company was made prematurely, if nothing else.
“Management have clearly underestimated the impact of the price hike for the combined service,” said James Cordwell, an analyst with Atlantic Equities, in an interview with the Financial Times. Cordwell also cautions not to overestimate the impact of the customer losses.
““The vast majority of Netflix growth comes from its streaming only package, and that price hasn’t changed. Once the dust settles from the impact of the pricing structure changes, we shouldn’t see a material change in the growth trajectory,” he said.
Despite this downturn, Netflix continues to grow. The company recently expanded its services to Brazil, with 43 additional countries in Latin America and the Caribbean coming soon.