Netflix, One Year Later
First it moved to hike prices when its customers were struggling to make ends meet just to pay for basic household necessities. Then it turned around and announced plans to split its popular DVD delivery service from its streaming business -- a decision it later nixed.
Today, very little has changed with the company, but how it is perceived and its competitive landscape have taken a turn for the worse.
There was some good news in the company's most recent earnings report as Netflix met its targets and reported profit of 11 cents a share, topping the average analyst estimate of 4 cents. Revenue was $889 million, up from $788.6 million a year earlier.
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The bad news is that the good news will be short-lived. That's because subscriber growth is slowing. In addition, Netflix forecast a fourth-quarter loss due to international expansion.
Following the earnings release, the stock dropped as much as 13%, although it has since recovered moderately.
The question is: How did things get so bad for a company that at one point could do no wrong?
It dates back to July 2011, when Netflix announced the price increase, which went into effect for existing subscribers on Sept. 1, 2011. Loyal customers who once bragged about being Netflix subscribers were not pleased.
Under the new plan, it cost $7.99 a month for either a DVD-only subscription or a streaming-only subscription. If customers opted to receive two DVDs at a time, the price went up to $11.99. On top of that, if DVD-only customers wanted to add streaming, that required paying an additional $7.99.
Prior to the change, subscribers enjoyed one DVD at a time as well as unlimited streaming for only $9.99 a month. After the change, the price of the same services jumped to $15.98 a month.
In response, one million subscribers cancelled the service, prompting Netflix's CEO Reed Hastings to issue a personal apology to each subscriber via email. But many of those subscribers still haven't returned.
I can't help but wonder whether it's not too late for Netflix because the competition from Amazon.com(AMZN) , Google(GOOG) , Apple(AAPL) and cable operators such as Time Warner(TWX) and Comcast(CMCSA) has increased, and in some cases, these rivals have surpassed Netflix.