Netflix Claims Customers Freaked Out Over Price Hike

Illustration for article titled Netflix Claims Customers Freaked Out Over Price Hike

After a decade of explosive growth, Netflix is experiencing some growing pains. Though Americans are watching more online video than ever, Netflix is facing steeper competition (from rivals like Google, Amazon, Apple, and HBO) in addition to an uncertain future in international markets.

Advertisement

These uncertainties—combined with slowing subscription growth—sent Netflix stock plummeting 15 percent in after-hours trading ahead of its second quarter earnings report. The company reported only 1.7 million new subscribers, falling significantly short of its 2.5 million new customer target.

“Gross additions were on target, but churn ticked up slightly and unexpectedly, coincident with the press coverage in early April of our plan to un-­grandfather longer tenured members and remained elevated through the quarter,” said Netflix CEO Reed Hastings in a letter to investors. “We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering.”

Advertisement
Netflix CEO Reed Hastings included this Google Trends graph in the company’s earning report to show an uptick in the search term “netflix price increase” earlier this year.
Netflix CEO Reed Hastings included this Google Trends graph in the company’s earning report to show an uptick in the search term “netflix price increase” earlier this year.

Hastings continued to harp on how foolish customers just didn’t understand the price hike. “We got this slight uptick in churn in multiple countries in the same week, and of course, that’s not a competitive signature,” Hastings said during the earnings call. “We’ve looked at everything, and the fact that it’s coincident with that Google Trend data we included really indicates that people don’t like price increases. We know that.”

“This is really around change resistance,” he added. “Whatever the price is for something, people don’t like for it to go up. But in terms of new members, which is what drives growth, the new pricing is working great.”

Sadly, for Netflix investors, the new pricing actually isn’t doing that great. The company barely reached half of its new subscriber target in the second quarter, and many investors remain cautious.

Advertisement

This ugly earnings report is rather unusual for Netflix. Until today, coverage of Netflix has been mostly rosy. The last time Netflix had such a somber earnings call was when the company tried to break itself in half in 2011, when it launched a DVD-only subscription service called Qwikster. The service was short-lived and is still considered one of the worst product launches of the last decade.

Despite the poor earnings report, Hastings and company said that with the increased revenue, Netflix plans to invest in better content. Earlier this year, the company expanded to 130 new countries (but not China) and it could soon be available on Comcast cable boxes. But the real question that remains is whether Netflix subscribers will continue to shell out $10 per month when there are so many other places to find online video.

Technology editor at Gizmodo.

Share This Story

Get our newsletter

DISCUSSION

screaminscott
ScreaminScott

You know, until there is a button on my AT&T Uverse remote that says “Netflix” I’m not going to bother (Yes, I know it won’t happen).

Navigating down into the bowels of my smart TV menus to get to Netflix and Amazon Prime is maddening. So if it’s not offered by my regular TV service I’m not going to bother.

And I’m a pretty tech-savy guy who works in I.T.

Is there an easier way? Or does everyone just deal with these cobbled together interfaces and add-on devices in order to get more content?