Netflix price rise draws user ire, investor glee

Wed Jul 13, 2011 4:11pm EDT

* Customers threaten to leave after 60 pct price rise

* Some cancellations expected, Netflix says

* Investors welcome move, send shares 2.6 pct higher

By Lisa Richwine

LOS ANGELES, July 13 (Reuters) - Netflix Inc's (NFLX.O) hefty price increase provoked an unprecedented outpouring of outrage on the Internet, but Wall Street cautiously welcomed the move, sending its shares up nearly 3 percent on Wednesday.

Thousands of subscribers complained on Netflix's official blog with many threatening to cancel subscriptions after the fast-growing video service raised prices by up to 60 percent for users of both its streaming and DVD-mail service. [ID:nN1E76B111]

Many said they would consider options such as Hulu, the Internet video service owned by Comcast Corp (CMCSA.O) NBC Universal, News Corp (NWSA.O), Walt Disney Co (DIS.N) and Providence Equity Partners, or even Redbox, whose once booming kiosk-rental service had been eclipsed by online, instant Web offerings.

"Who's genius idea is this crap?" said one comment on the Netflix blog, which promised to cancel service. "Your streaming selection sucks and the Red Box is looking better and better these days!"

The higher prices clearly stirred passions among the company's subscribers, but Netflix brushed off the criticism as expected from a vocal minority.

"We knew there would be some people who would be upset," company spokesman Steve Swasey said.

The increase amounts to $6 a month for one DVD at a time plus unlimited streaming.

"To most people, it's a latte or two," he added.

The company expects some cancellations, Swasey said, but he declined to say how many.

Some industry analysts argued the higher prices should make up for cancellations, in part by driving customers toward more profitable Netflix plans.

Subscribers who cancel are likely to be in lower-priced plans, with one DVD at a time, who turn in more DVDs, said Goldman Sachs analyst Ingrid Chung.

"Gross margins should benefit as we believe that the majority of lower-priced (subscribers) were less profitable for Netflix," Chung said in a research note.

Lower-priced subscribers also might be drawn to the streaming service, "which has very incremental margin," wrote Chung, who has a "buy" rating on Netflix shares.

The new prices take effect immediately for new subscribers and in September for current customers.

Netflix's price rise comes as it finds itself writing increasingly large checks for the rights to the movies and TV shows its customers expect to find from its streaming service.

In one such deal, Netflix renewed on Wednesday a multi-year agreement with Comcast Corp's (CMCSA.O) NBC Universal, giving it rights to stream previous season hits such as "The Office" and Parenthood" from NBC and series, including "Keeping Up with the Kardashians" and "Psych", from its cable networks. The financial details were not disclosed.

Netflix said on Tuesday it was raising by 60 percent the monthly price of a plan that lets subscribers watch unlimited movies and video online and get DVDs by mail.

The price for unlimited streaming plus rental of one DVD at a time will run about $16, up from about $10. Subscribing to just streaming, or just one DVD at a time, costs about $8.

One comment on the Netflix blog was more accepting.

"If you can improve your streaming selections it would be a benefit. I now pay the price of both anyway so I don't see a downside for me," wrote a person identified as "Scott."

While customers vented on the Netflix blog and Facebook page, the company's shares rose 2.6 percent to close at $298.73 on Nasdaq. (Reporting by Lisa Richwine and Paul Thomasch; editing by Andre Grenon)

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Comments (18)
laotzu wrote:
My wife and I will be making a decision to either switch to the streaming only, or cancel our subscription altogether. I can understand small price increases, but this just seems greedy to me and I’m tempted to simply cancel today based on general principle. I get that I can stream only and pay less, but nobody can deny that the streaming selection is sub par. If the selection gets dramatically better then that will be the deciding factor. The only reason we did the mailer movies at all was because of the poor streaming selection. There’s NO WAY I’m paying $16 for both streaming and mailing.

Jul 13, 2011 4:33pm EDT  --  Report as abuse
dharmakitri wrote:
In other words, we at Netflix don’t give a crap about our customers, only our shareholders.

Jul 13, 2011 4:37pm EDT  --  Report as abuse
so, does the comment below bother anyone else?
“Subscribers who cancel are likely to be in lower-priced plans, with one DVD at a time, who turn in more DVDs, said Goldman Sachs analyst Ingrid Chung. “Gross margins should benefit as we believe that the majority of lower-priced (subscribers) were less profitable for Netflix,” Chung said in a research note.

my interpretation of the comment: screw you guys! if you only spend the minimum, we don’t need your business! we will jack up the price and make more money without you! nevermind that you are the people that got us where we are!

wow…

Jul 13, 2011 4:41pm EDT  --  Report as abuse
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