The last quarter has not been good to Netflix. The company reported a loss of 800,000 subscribers, mostly due to the PR nightmare that came after it raised its prices for its combined streaming and DVD plan by 60%. Netflix ended the quarter with 23.8 million U.S. subscribers, compared to 24.6 million three months ago.
It’s not all bad news; Netflix has still seen a net gain in subscribers over the year, up 4.7 million from the same time last year. Still, that’s little consolation for a company used to meteoric growth. Netflix’s letter to its investors took on an apologetic tone:
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“We think that $7.99 for unlimited streaming and $7.99 for unlimited DVD are both very aggressively low prices … and they are the right place for Netflix to be in the long term. What we misjudged was how quickly to move there … Our primary issue is many of our long-term members felt shocked by the pricing changes, and more of them have expressed that by canceling Netflix than we expected.”
That separate brand, of course, was Qwikster, the short-lived DVD arm of Netflix that was soon folded back into the main service after being derided by scores of Netflix users as well as Saturday Night Live.
Ultimately, it was more a matter of tact than a flaw in overall strategy; not many people are arguing that streaming content isn’t the future. The price increase was simply too much, too fast, with little explanation to console people who saw their monthly Netflix bill jump $6 in the middle of one of the worst recessions in U.S. history.
Most of the losses were in the DVD-related subscription plans, which, oddly enough, somewhat vindicates CEO Reed Hastings’ focus on streaming. As long as it keeps acquiring content, the company’s future looks bright; this, however, is not a given, as demonstrated by its recent break with Starz. Still, with its imminent entry into the U.K. and Ireland and the weak offerings from its closest competitor, Amazon Prime, Netflix should slowly make up for its terrible quarter … provided management doesn’t make any more boneheaded decisions.