If you follow business and financial news you’ve most-likely heard about Netflix.
The online DVD rental and movie streaming service has taken a big hit recently.
A brilliant concept that started in 1997. Netflix dug a grave for Blockbuster Video when they weren’t looking, pushed them in and proceeded to throw dirt over them. Until recently it seamed Netfix could do no wrong.
I first heard about Netflix in 2005. A customer of mine told me about it. My wife may have joined a few months later. I remember checking their stock price six years ago. It was around $25 per share. I guess it was a bargain.
Their stock hit a high of $305 on July 13th of this year. But since then their stock has been getting creamed. About $80 at the time of this writing. Still not bad if you bought it in 2005.
So why has the company’s value gone down by billions?
A few reasons…
They are on an aggressive expansion to be the first in new markets around the world. That sort of under-taking would be expected to bring the stock down a little. But why else has the stock suffered?
Here’s Why…
Netflix Spooked Share-Holders and Customers in two ways…
First, they raised the price of their popular DVD by mail and online streaming combo service by 65% percent. Then, they announced plans to separate the two services.
The truth is the new price might still be a great deal. But that’s not the psychology at work here. It’s the principle of the thing. Whether a rate or price increase is fifty cents or thousands of dollars it’s all relative.
I learned from my years in the martial arts business you can’t just jack up monthly tuition rates on existing members dramatically and expect them to be happy about it.
Reed Hastings pay attention…
Even though what’s done is done, if I were consulting with Netflix CEO, Reed Hastings, and he asked me what I thought of the price increase I would have had told him he was nuts.
What he should have done was put a plan in place to reward his loyal subscribers with a very small price increase or none at all. The brain-storming session would have been about the small two to three dollar increase, but focused on the extra value and strong reason for the increase so we would have had a case to make to the members.
Then, there could have been a recruitment push to get as many new subscribers in BEFORE the huge price increase. So instead of jacking members up from $9.99 to $15.99 he could have moved them to $11.99 or $12.99 with some added value and a justification for the small increase. And new members acquired in the recruitment push could get in at the $12.99 and lock-in the rate and never worry about paying $15.99.
Netflix Really Does Need The Price Increase
The reason for the increase is for the long-term benefit of the subscriber IMHBAO. DVD’s and postage eat Netflix’s cash-flow. They need that cash-flow to get better content into their streaming service. I love the streaming service. The streaming service is really the ultimate video store of the future. But what I don’t like about it is most titles I want to watch are on DVD only.
Yes, my wife and I were one of the many who did not go for the price increase and canceled our DVD program with them. We still do have the streaming.
Netflix back-tracked on that idea to split the services, but the damage has been done.
The lessons are simple…
Netflix could have easily saved billions if they played their hand better. You simply can’t try to pull off what they tried to pull off without and up-rising.
