Netflix Tries To Blame Press Coverage Of Its Price Hikes For Lower Than Expected Subscriber Additions
from the shoot-the-messenger dept
Late last year, Netflix raised rates on the company's new streaming subscribers from $9 a month to $10 a month. Existing subscribers were grandfathered in at the previous rate until last May, when they too saw the price hike. Reporting the company's earnings this week, Netflix noted that it "only" added 1.7 million new subscribers worldwide. And while that's still pretty impressive at a time when most major cable companies are slowly bleeding subscribers, that's still well below the 2.5 million Netflix expected to add. The most likely reason for the dip? Price hikes (though foolishly blocking VPN users may have also played a role).But in a Netflix letter to investors this week (pdf), the company tried its very best to try and blame the press coverage of its rate hikes -- not the rate hikes themselves -- for the company's slower than expected growth:
"Gross additions were on target, but churn ticked up slightly and unexpectedly, coincident with the press coverage in early April of our plan to ungrandfather longer tenured members and remained elevated through the quarter. We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering."It was the press coverage of your staggered rate hikes that annoyed users? It was member "perception" of that news that was to blame for people leaving? That's some very Comcast-esque spin from Netflix, who throughout the letter consistently replaces the phrase "price hike" with "grandfathering" as if the investors they're talking to aren't bright enough to tell the difference (and perhaps that's true):
"While ungrandfathering and associated media coverage may moderate near term membership growth, we believe that ungrandfathering will provide us with more revenue to invest in our content to satisfy members, thus driving longterm growth. Over the second half of this year, we’ll complete ungrandfathering. Our three tier pricing (in the US: $7.99 SD, $9.99 HD, and $11.99 UHD) is working well for us and for new members, and our gross additions remain healthy."Of course to be fair, one small U.S. price hike isn't really much of a big deal for a company that just expanded into 130 more countries only back in January. Also, if you recall, the internet media went into histrionics a few years ago after Netflix bungled its DVD arm spin off (Qwikster, RIP) and imposed a different rate hike, one many analysts insisted spelled doom for the company. The reality is most people still find Netflix to be an incredible value in the age of soaring legacy cable TV prices, and the company still has some leg room on both international growth and pricing.
But just like its traditional cable counterparts, Netflix is going to start having to feed insatiable investors with either additional international growth (likely China), or price hikes on existing customers. And just like any innovator pressured by Wall Street's incessant hunger for more, the company's strategy will slowly but surely shift from disruption to turf protection as streaming competitors arise and cable figures out it needs to compete on price. And while these recent hikes may not be dramatic, they're arriving as Netflix's overall catalog has shrunk in the last few years by as much as 40% by some estimates.
So while the Netflix of today remains a better value and more consumer friendly on issues like net neutrality (usually), the decision to start charging more for less -- then blaming the press when consumers balk -- is a relatively Comcast-esque move that may not bode well for the Netflix of tomorrow.
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Filed Under: blame, journalism, prices, streaming
Companies: netflix
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"These reviewers and bloggers decided to make up lies and say that the food was disgusting."
This tactic worked out great for Amy's Baking Company. Why shouldn't it work for Netflix?
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Re: "These reviewers and bloggers decided to make up lies and say that the food was disgusting."
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"and cable figures out it needs to compete on price"
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Why stay with Netflix?
Explain to subscribers in painful detail why they block VPNs, the cost of licensing programming, why they drop content and the cost of creating new shows. Treat subscribers as educated and capable of understanding how the business works.
Then again, perhaps consumers have hit that wall where subscribers may not feel the price of two lattes of month is worth a Netflix account when they also have to pay their ever increasing broadband bill cost and hit their monthly "data caps".
Or perhaps people have already watched most of the content Netflix offers (or removed) and feel there's just not enough to continue with their subscription. Netflix is known for binge watchers, when they've seen it all, why continue?
In any case, it will be interesting to watch Netflix struggle with retention.
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Re: Why stay with Netflix?
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Re: Re: Why stay with Netflix?
All Netflix has to say is "Sorry we're removing your favorite movie, but Universal/ Paramount/ etc think they can get more viewers by only showing it on their own site rather than to the X million of Netflix subscribers." (This makes the studios the enemy.)
And conversely: "We just spent $5 gazillion in a deal with Disney to bring you all the Marvel, Star Wars, Pixar, and Disney movies. We're a business and we have to re-coop our investment". (This increases the variety of available movies and shows, which makes a subscription a better value.)
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Re: Re: Re: Why stay with Netflix?
...therefore damaging future negotiations with all parties, especially considering that many of those studios are not switching to their own streaming service, but either licencing to Netflix's competitors (Hulu, Amazon, etc.) or temporarily removing all licencing due to some other reason (soundtrack licencing has expired, for example, or rights have been bought by another distributor who will return the film to Netflix after a new deal).
This is why they can trumpet from the mountains about their successful deals with Disney, etc., but they can't promote more negative news - *especially* when it comes to the actual terms of the deals. There's a lot of things that will simply antagonise studios and damage future negotiations.
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Quality
Now, with four kids, a $2/mo. price increase is insubstantial compared to the amount they use it, and a huge savings over cable. And to be fair to Netflix, they were very clear in their email communication 2 years ago that the grandfathered price would be for a limited 2-year span, so no one should have been surprised.
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Has Netflix reached a saturation point?
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This is awesome!!!
That's some brilliance right there.
No no silly consumer its not a price hike it's the completion of two years of grandfathering. LOL.
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Original content is king.
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Re: Original content is king
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Re: Re: Original content is king
HBO original content includes The Sopranos and The Wire, two of the best series in the history of television, as well as the hilarious Silicon Valley and others.
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Still, I believe they could be pounding the copyright monopoly harder and louder. You know, don't blame the price hikes on anybody, just show hard data with the absurd the MAFIAA wants to charge for their content just because they can. Use your position as means to rise awareness and make people hate copyright with passion.
But then again, Netflix is ripe for becoming the established player instead of the disruptive one...
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Re: They have to say something to investors
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Either die a hero, or live long enough to become the villain?
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However, in reality it's probably the lesser of the issues. I know people who have jumped ship to either another service or back to piracy as a direct result of the VPN blocking. I believe this is the larger issue, but Netflix's investors won't be placated by "we lost customers because of prehistoric licencing regimes" and "people won't pay 2x the price for 1/5 of the library just because they happen to be in the wrong country", so they have to save face.
"Of course to be fair, one small U.S. price hike isn't really much of a big deal for a company that just expanded into 130 more countries"
My account is from the UK site, and I was grandfathered in as well. I'm not sure how many were ultimately affected, but it's more than the US.
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So there may well be something behind what Netflix said. They may be giving it more emphasis than it really had, but I think it is a real thing.
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But, it's true that part of the issue for Netflix in the UK is going to be that between Sky and Amazon and numerous smaller competitors, lots of content is being licenced ahead of them. Nobody wants to pay for all 3 major services at once, so without the ability to use a VPN for a better selection Netflix becomes a less attractive choice for many and they may jump ship based on content offerings.
However, I can see why the pricing confusion was blamed here, as the underlying library issues are both not exactly Netflix's decision (they were fine with VPN usage till the studios got mardy) and more difficult to counter.
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Netflix Remark - Fixed!
A delayed price-hike is still a price-hike, Netflix.
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Very Possibly Noteworthy
In a related story, observers note that TPB and KAT still do not block VPN users.
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