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Netflix loses 800,000 subscribers (stock drops 28%) (cnn.com)
199 points by mikexstudios on Oct 24, 2011 | hide | past | web | favorite | 186 comments



I feel bad for Netflix. They're between a rock and a hard place. The content providers want more money and eventually want to cut out the middleman. The users balk when the price is raised, even though unlimited streaming and DVDs for a month still cost less than a decent meal. And every decision they make (like Qwikster, which was likely done so they didn't have to pay content providers a fee for users who weren't streaming) is bashed and mocked.


still cost less than a decent meal

So many great things on the web cost less than a single cup of Starbucks. Yet, I myself am so hesitant to pay for them.

On my landing pages I design at work, I'm increasingly trying to communicate this via comparisons("less than a morning Starbucks trip"). Another one is showing a dollar bill to communicate that for less than a dollar a day, they will get _____.

For a service that we were charging $10, we had 3% conversion rate.

Then I showed an actual picture of a $10 bill to show how inexpensive this is and we doubled conversion to 6%.

I increased the price to $30 and showed a one dollar bill, an equal sign, and what they would get for a dollar a day. The conversion rate is 3%. Overall, we make $30 more per 100 uniques to that page than at $10 price(we make $60 at 10, $90 at 30).

It seems promising though not totally conclusive in terms of increasing conversion rates. The point is, spending a dollar on the web to me seems much more difficult than spending a buck on a Crunch bar. The efforts of my landing page experiments are to align online spend perception with retail.

(numbers rounded to nearest % for purpose of this post)


The reason I think long and hard before signing up for new web services isn't even the cost 99% of the time, but the uncertainty in how difficult it is going to be to cancel should I decide I do not want to continue.

I've had it UP TO HERE with services that allow me to subscribe with one click and then make me go through a half-day long ordeal of phone calls to outsourced customer service people (who earn bonuses based on convincing you not to leave the service) in order to cancel.

Making it obvious that I can leave at any time just as easily as I joined is a huge greasing agent for getting me to actually put down money to try your service. It is a shame so few sites/services do this and most go with the short-sighted trap-em-in model which hurts the industry as a whole (since it makes people like me far less likely to use any non-essential services just to avoid the potential of a cancellation PITA).


My thoughts exactly. $1-$20 a month might not be much, but if I sign-up to something and it takes me half a day of jumping through hoops such as making phone calls then it ends up costing me a lot more than that, not just based on time (and how much I think my time is worth), but also in raising my stress/frustrating levels.

Let me know and can click 'cancel' anytime, no strings, no hassle and you'll probably get me on impulse purchase. Don't : Good luck getting my money.


Ironic then that Netflix is one of the best companies at letting you change / pause / cancel your service in just seconds.

Tivo, on the other hand, will make you cry before they let you cancel their service. Can't do it online, and it's a minimum of 20 minute phone call. I've had to do it twice over the years and it makes me really reluctant to turn on Tivo ever again.


It's gotten better, but I used to call up my bank and ask for a new debit card once or twice per year rather than having to deal with the hell of canceling various services.

It was fun to that the same companies who made cancel-ling impossible would call me up to tell me that billing had failed.


I use a http://en.wikipedia.org/wiki/Controlled_payment_number for things like this. I can set a specific credit limit, or just stop the number at any time.


Do they ever send you to collections? I hear that's an even worse nightmare.


Bill collectors really aren't that bad if you know how to deal with them. I got sent to one once for a service I had canceled three times. The collector sent me a letter in the mail and then started calling every day at around 8 or 9 am.

I sent all of the calls to voicemail and I sent a letter to the collector (via certified mail with delivery receipt) that said "RE: account number XYZ; this bill is erroneous, do not contact me again." I haven't heard from them since.


Mine was the opposite experience. It wasn't really the same situation as yours, so maybe this is totally irrelevant. But here's my story, just incase.

My health insurance denied my coverage for a Dr's appointment ("pre existing condition") a month or two after the appointment. I had moved by then, and apparently the mail didn't get forwarded or something. The dr's eventually turned me over to some California collection agency who then wrote letters to the same address, with the same result. They did leave an incoherent, mumbling voicemail once, which sounded like a telemarketer (hence I ignored it).

To my eternal horror, my credit score dropped from 762 to 630 in June. Over 130 points, over an $80 bill. This means I went from "higher score than 86% of Americans" to "higher than 24%".

It has utterly destroyed me. I have no credit anymore. I've been too scared to even apply for another credit card (I only have one), even though "you're supposed to every N years", for fear it would drop my score even further. I have a wife, and our credit prospects went from "could not be better" to "completely, utterly screwed. Good luck if your car dies. Also, good luck getting any kind of AT&T service, Internet service, etc etc when you move again."

They showed no remorse at my situation. The lady assigned to my case even directly hung up on me when I expressed annoyance about her not attempting to contact me more... Thoroughly... Before she decided to ruin my family's financial life. I immediately called back, which rang and rang until reaching her voicemail. I contacted her manager, who said that the lady assigned to me was the final authority on my case, and had not acted inappropriately by hanging up. Nor did they care that the mail hadn't reached me. The worst part was, I had the money the whole time. I would have paid.

Don't take bill collectors lightly. They'll break your family's financial knees over $80, as they did mine. (Edit, clarification: they will report your bill as "seriously past due 90 days / account in bad standing" or some such, which will destroy your score at all 3 of the credit bureaus; hence, the whole system will break your family's financial legs.)


Another approach to take - there are lawyers/groups that specialize in getting these things removed. It will probably cost anywhere from $500-$1000 but they will harass every party involved until someone slips up and the bureaus are forced to remove the claim by law.

Depending on your situation it may be less expensive than what you would pay for a high-rate auto or home loan, etc.

I don't work for or know anyone that specializes in this but had a friend get 4 different claims removed over the course of a year this way.


Ouch - I would contact each of the credit bureaus and ask them to remove the claim. It was purely a communications error because, as you said, you're willing and able to pay the bill.

(I'm not sure who the "they" is, hopefully not the credit bureau :(


FWIW there are companies that specialize in 'fixing' your credit, and resources on the web for same. With some work you can usually clean up a bad credit score over time.


It... doesn't work like that. I wish it did. They literally do not care that it was a communications error. Under law, they sent the letters they were supposed to, and called me at least once. That's as far as their mercy extends.

It seems unlikely that the credit bureaus would listen to me over Cal Coast Credit (the collectors).


If you write the letters, and keep sending them, eventually they will fall off of your credit report. Once you ask a credit reporting agency to remove something, they have to contact the original creditor who then has a set period of time to respond, or the listing is removed.


Interesting.. Thank you. Would you mind pointing out where to get further info? What if they respond in time?


The phrases you're looking to google are: [credit report validation]

[codename47 site:fatwallet.com]

Also check out these: http://www.bargaineering.com/articles/how-to-fight-debt-coll... (note that this site is now owned by Quinstreet so caveat emptor) and http://www.creditboards.com


Thank you so very much!


I second creditboards.com. It can be difficult and demoralizing to find what you need on there, but it's worth it. I've got several collections removed from my own report, and I'll help anybody who asks.

Since you're dealing with a small valid debt -- the first thing to try is the Right Thing. Call the Dr's Office -- not the collections agency -- offer to pay if they will take the bill back from the collections agency. Whether they can do that depends on their arrangement, but for a small Dr's office they probably can. After that, you may need to contact the credit bureau's again, but it should go much better.

If that doesn't work, then you need a VALID complaint for the bureau's. Any discrepancy between the truth and what's on your report is worth trying. If the date is wrong, or the name of the company, anything. Keep trying.

This last part is my opinion, but I don't think you should EVER pay to the collections agency. They will not remove things from your report because you paid. If you ask, then they know they have you over a barrel, and will try to get more money out of you. Pay the original company.

EDIT: Another great weapon is local state law. Collection agencies have to abide by the law of their state, and the law of your state. I'm in Texas -- our laws are very strict on collectors. Your agency is in California -- I believe their laws are strict too.


Thank you too! How long did it take you to get your report fixed?

I haven't paid the collectors.. I've been so disgusted with the situation and their behavior.

Again, thank you so much for your time.


I had 15 or so collections (misspent youth, what can I say), it took me a year of off-and-on effort to clear them out. I had a very boring high-paying job, so I could take the time to do it right, and could afford to send out registered letters all the time.


We had very similar experience with medical bill (insurance didn't pay, we moved, years later found unpaid bill on our credit report).

Collector offered to pay and clean up the records.

After going through some doubts (what if collector lie about clean up?) we did pay and within weeks credit score returned back.


excuse my ignorance, but what's a credit score and why does it matter? I can see it's a Bad Thing to have a low one, but in what way does it impact someone?


A credit score is maintained by a credit bureau, so potential lenders can check up on how "good" a potential borrower is before making a deal. https://secure.wikimedia.org/wikipedia/en/wiki/Credit_score So having a low one makes it difficult and expensive to get a loan or any kind of credit.


That's correct, but it's not quite that simple.

If my car dies, I won't be able to get anywhere, because I can't get a loan for a new one.

When we move to a new apartment, they won't allow us to have Internet service. I am not exaggerating in the slightest. AT&T U-Verse already denied me once in the past, before I got my score to 760 --- they refused me service. Completely. No alternatives. It didn't matter to them whether I had $10, $1,000, or $10,000 in the bank. The computer told them "unknown risk", and so they would not do business with me. There were no alternative internet providers. I would have been completely screwed, but my wife (who was my fiancée at the time, thankfully; credit score of one person will reflect on both of you after marriage) was approved.

We will not be able to get a house, if we choose to. We might not even be able to live in a specific area we want --- apartment complexes check your credit before allowing you to live there.

All over $80, due to the messed up health insurance system. Blergh.


and you've got no recourse? sheeesh! what a screwed up system

I sincerely hope you're able to get things sorted. Thanks for the explanation


Credit score or credit history is the way the US build trust in you as a customer.

Other places, like in Denmark for instance you are by default considered a trust-worthy customer and only if you start not paying your bills does it affect your ability to get a loan etc.


I'm sorry, as this is rather off-topic, but are you by any chance unfamiliar with credit scores because they don't exist in Australia? If so, how do lending institutions gauge your credit-worthiness, and how do you set expectations about the same? I am just curious how this works outside of the US.


non-US perspective:

In the Netherlands we have the "Burea of Credit Registration" which registers most debts, storing:

    - amount
    - start date
    - expected end date
    - actual end date
    - type of credit
    - miscellaneous notes
If payments are missed or other difficulties develop the lender can contact the Bureau, which notes this information on file. This information is stored for up to 5 years after final payment.

Note that this only tracks loans to individuals with a duration longer than 3 months and over a certain minimum amount.

The basic idea is that everyone who has not failed to repay a loan is considered creditworthy, actual loans are based on the above info, income (plus certainty of employment) and collateral.


Thanks, that sounds basically the same as the credit reporting agencies here in the US (except maybe the thing you're talking about is government-run?)


Well, my impression was that in the US you need to establish some kind of credit history to get a good credit score. Whereas here it is normal for people with no credit history to get loans and mortgages.


This is going to sound terribly naive, but I don't know what we have here in Aus. I've got a mortgage, car loan and credit card, but the process for getting them was relatively mundane. I know if you sign up for a phone plan they do a "credit check" but I don't know what it involves. I assume we have something, but I've never had cause to think about it before


I wish I could be terribly naive too... =) Aus sounds amazing!


I know a guy, who was at a conference, and was told by a guy in banking that one of the credit scoring techniques for credit card applications was checking if the first and last letters of your family name are vowels.

The idea being that Nigerians usually have vowels on both ends of their family names.


Never. The kind of companies who are automatically billing are attempting to charge in advance for monthly services without a long-term contract, as opposed to billing in arears, so as far as I know I don't owe them the money and they can cancel my account clearly.


Cancelling a recurring service is generally no more difficult than saying, "please cancel my subscription quick so I don't have to charge this back."


IME what you said is true, but only once you're talking to the manager of the manager of the person you originally waited on hold 25 minutes to talk to. And this is your second call because the first one got dropped randomly after 20 minutes on hold.


Companies will find ways to delay you as long possible: http://i.imgur.com/G0qlu.jpg


Except when forced to by law. Illinois doesn't allow Microsoft to do that and Illinois residents can cancel with one click.


Not exactly the case - documented the struggles for canceling Clear at: http://wp.me/p1CQDI-3i


Although I am against most regulation I would strongly support a law that required unsubscribe/cancelations to be processed in the same manner as subscriptions. If I can subscribe/expand my service online I should be able to cancel online as well.


They have this in Illinois for online gaming subscriptions but of course when companies like Microsoft comply, they limit it to only that state: http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name...


this is very interesting to me; I thought that the ultimate in this would be to give you control over billing, so I don't do pull billing at all- I send you a bill and you pay it or you don't. (alternately, we can setup a paypal recurring payment for you, but you also can cancel that without telling me.)

But, all I hear about this model from my customers is complaints. It's a pain in the ass for them to pay every month, or they hate paypal, can't they just give me a credit card, etc...

It's possible that most people feel the way you do and those people just sign up and don't say anything... but I dono.


George - that is really incredible feedback. thank you for that comment.


"less than a morning Starbucks trip"

I wouldn't think that a comparison like that would work.

For one thing there are many people who feel they are pissing away money on Starbucks, or feel some guilt (I myself spend about $4.00 per day and sometimes twice that. That's at least $1500 per year. I don't want to be reminded of that, especially when business is off.)

(So you are making a comparison to a potential sore spot. You want a positive association. Comparing to Starbucks but without mentioning price might be an example but that wouldn't make sense for your product, right?)

Now, to sell it's product, Starbucks (or any premium brand) doesn't make comparisons to what other things costs. They make you feel special in some way by the product or by the experience or create some value that justifies the price.

Making comparisons is good though if you are saving people money.

Have you tried raising the price and offering an unconditional money back guarantee?

"Cancel at any time and owe nothing".

That seems to work with many things I've seen that cause people to be fence sitters as long as the price is high enough.

Seo book does that (p1 for seo and search engine optimization)

http://www.seobook.com/


Your web apps don't release dopamine into my bloodstream. Your iPhone game doesn't give me a headache if I don't play it. I can't take a girl on a date to your eBook PDF.

The reason that digital goods _seem_ more expensive is because the result we get _is_ less valuable to us as human beings. It's hard to pay money for things that leave you exactly as you were before - sitting in a chair, looking at a screen.


Since when is how much we get from something tied to how it impacts us? Watching a movie doesn't change us physically, but we pay $12 for it because it entertains us, just the same as most digital goods. I don't pay $20 for a book because I want a stack of paper, either.

If that was true, you'd get paid to smoke and eat fast food, since they have a negative impact.


Yeah but if you bought my productivity app, you may have more time for your date.

Or you may have less headaches from your finances.


It's the nickel and diming of modern services. Every service is just a buck, just a fiver, just a tenner. I used to get usenet with my ISP, now I pay for it. I used to get luggage for free with my flight, now I don't.

We've literally turned pricing around: even $1.99 seem like too much for an iphone game... when you realize that too many $1.99s will turn into $20 or more dollars.

But I agree, money for services online feels very different from money for product, whether a good deal or not.


So let's say you get a Crunch bar. You unwrap it and take a bite. It fills your mouth, and you taste chocolatey goodness. You chew on a little. Crunch, crunch. Your mind drifts off a bit and you swallow a mouthful before going to take another bite. This is exactly the kind of direct, physiological pleasure $1 can get you, and it's something we've enjoyed for billions of years, and spent all that time evolving new strategies to achieve.

You know what doesn't have trouble selling online? Sex. Anything from escorts to live cam shows to porn. Why? Because that's another direct, physiological pleasure we've had for billions of years.

Now tell me, what kind of web services compete with eating and fucking in terms of what people really want?


"So many great things on the web cost less than a single cup of Starbucks. Yet, I myself am so hesitant to pay for them."

It's the same thing where if you add up all the things you are supposed to do each day that only take 5 - 10 minutes, you end up with like three hours worth of stuff. Flossing, meditating, abs, showering, etc.


I think it was the SmugMug guys who discovered that they had higher conversion rates at $12/year than $10/year, because people found it easy to think of as $1 / month. Response to pricing on virtual services can be tricky.


It might have been Funny Or Die


This says things about the prices at Starbucks as much as it says things about the web. :)

Also, with food, even if it is terrible you can still eat it. It's a no/little risk investment.


even if it is terrible you can still eat it

I see you've never been to Friendly's.


I think it's because the lack of tangibility (in any real sense) makes it seem less valuable. I had an experience where I said "pay $7000 for my service with a computer included" or "pay $5000 and byoc" and i've so far had everyone choose the $7000 option. It's just a matter of connection / tangibility. You know what starbucks tastes like, so you're willing to pay. You know what an iPhone feels like, so you can buy it. The software, while awesome, doesn't connect like a physical product you can connect with on multiple senses.

My $.02, but I think it's why it's easier to buy a big mac than Rdio.


I am not sure in your example people picked the "with computer" option because it was tangible. I am guessing that anyone who can afford 5,000 for a service can afford a couple of grand to avoid the hassle of purchasing and setting up a computer. If your service was worth $100, then I would indeed find that remarkable.


The best potential outcome of this would be accelerating potential copyright/IP reform. Netflix is destined to die unless they can find a way to diversify; as you said, the rights holders want to cut out the middle man. The overhead requisite in old-world rental chains like Blockbuster is sufficiently prohibitive that the media companies did not have an interest in supplanting that market, but now that Netflix has proven the viability of online delivery, apparently media companies don't think it prohibitive to set up some servers and stream reruns.

Netflix perhaps should consider transitioning from a consumer-facing service to a white-label technology provider, developing things like the recommendation engine, rental and streaming platform, etc. and licensing to media companies as the basis for their several services. Unfortunately, I think the unified collection in services like Netflix is going to go away as media companies' greed drives them to try to take their own slice of the pie, probably resulting in fewer subscribers all the way around and potentially a resurgence of brick-and-mortar video rental, where, it appears, media companies still are not interested.

All that said, $300 was grossly overpriced for a company whose entire existence depends on the benevolence of a handful of major media producers.


> apparently media companies don't think it prohibitive to set up some servers and stream reruns.

Hmmm... because it's so easy to do that well? Their arrogance would be amusing if it wasn't so brazenly stupid.

How is it that Jobs and Apple could do iTunes successfully, but Netflix's neck is under Hollywood's boot?


How would this accelerate copyright/IP reform?


It's a great example of the excessive control given to rights holders, so excessive that a prominent company like Netflix ($300/share is certainly not something to shirk) and similar hypothetical businesses can be totally gutted at the pleasure of a handful of production companies and/or publishers. The diminution of Netflix is no small matter and will hopefully serve as a very visible demonstration of the cruel absurdity of current copyright law.

Netflix can only offer a relative few movies without the approval of content holders, mostly only those that are older than my grandparents. They don't even have the option of reverting to classics from the 40s, 50s, 60s or 70s.

The hope is that the dramatic demise of Netflix will raise awareness and visibility of these issues, promoting IP reform.


It seems as though you're suggesting that the movie studios that spend tens, sometimes hundreds, of million of dollars to produce a single film should be forced to sell it to companies like Netflix for pennies. The basic problem here is that Netflix is selling a total fantasy product that does not pay the rights holders enough money. Look at the math -- $8/month for unlimited access? How does that possibly work when your cable bill is $80/month, a DVD/BR costs $15-$30, and a movie ticket costs $10-15? HBO, which shows more recent movies, is about $20/month by itself. Just to offer competitive prices to the rights holders I suspect Netlix would have to charge between $50-$75/month.

I'm generally all for government regulation as needed but this seems absurd. Why would any film company produce movies anymore? People (un)happily pay a lot more for the content today in other mediums. We're going to force the film industry to charge them a lot less to prop up Netflix and other streaming video services? Again I have to go back to the simple fact that Netflix has always been selling a fantasy and their troubles today are totally self inflicted. They convinced people they could spend an insanely small amount of money to get a huge amount of value/content. Netflix is almost a ponzi scheme.


That said, Netflix does have the content and the media companies presumably didn't license it out of the goodness of their hearts.


I have to disagree with you. Whats the point of an IP if you have no control of who uses it.

The problem is that the content holders don't realize who their friends and enemies are. They worry about the web, but when a solution to a lot of their issues arises, they want to charge them right out of business.

my 2 cents...


Whats the point of an IP if you have no control of who uses it.

Compulsory licensing already exists for music. Something similar could be done for movies. It may not fit in an $8/mo streaming plan, but the change would allow anyone to set up a streaming site as long as they pay the compulsory licensing fees.


Yeah, I can't believe the nerve these software developers have, they don't accept a $0.99 for all their apps. Let's make them lose their copyright and make sure app stores can dictate pricing freely, without having to negotiate with developers.


I'm not arguing for the abolishment of copyright entirely. I just think 90 years+ is a term far too long. I'd like to see it reduced to something in the 20-30 yr range, and perhaps some broadening of fair use and derivative works allowed without license.


Once copyright goes to 20-30 years, Netflix (or its successor) could have a tiered plan: $8/mo that streams fully-recouped and out of copyright movies, $x/mo for new releases.


> businesses can be totally gutted at the pleasure of a handful of production companies and/or publishers

If this were true, those studios would go out of business and more cooperative studios would rise up to replace them within a few years.

> $300/share is certainly not something to shirk

The important metric is market capitalization (share price multiplied by number of issued shares). Netflix's market cap is an optimistic $5 billion. Apple is $377 billion, equal to 75 Netflixes.


The users balk because they understand that their effective monthly/weekly price was jacked up, by a lot. Regardless of how much Netflix pitches their "unlimited" plan, users understand that their time for (movie) entertainment is not unlimited. Therefore, from their perspective, they see it as it is - a huge price increase - and they move on to better deals or something else entirely.


Qwikster would have resulted in Netflix paying more credit card fees (two credit card charges a month instead of one); there is a fixed fee for every transaction. It made no sense to try and get out of movie studio bargaining by paying credit card companies a bigger cut--if it worked for existing streaming catalog deals, it would be temporary at best.

What is going to really hit Netflix hard is the entire Starz library disappearing from Instant.


"I feel bad for Netflix. They're between a rock and a hard place. The content providers want more money and eventually want to cut out the middleman."

This is true, but the content providers are also between a rock and a hard place, but don't seem to realize it. A generation of kids are growing up knowing how to get content for free, but the low cost, convenience, and value add of netflix is worth it if you aren't poor.


> but the low cost, convenience, and value add of netflix

I still find it much more convenient to head over to TPB (or another tracker of my choice), find a torrent of whatever I want to watch, download (and share) it, and then be able to play it with my favorite media player - as many times as I want.

I don't see what value a streaming service is supposed to add over a local copy. It's a waste of bandwidth as soon as you watch something more than once, and the quality will never reach that of a local copy.

By the way, I'm not exactly poor. Asserting that their financial standing has anything to do with the reason people pirate is a confusion of correlation and causation.


Yeah, the torrents are still a good option, but I like Netflix since it's quicker and easier than torrenting. The streaming is instant. And if you have "unlimited" bandwidth, then the additional streams don't really matter. When I'm on my couch and want to watch a movie, I don't want to search for and download a torrent, I want to watch a movie. Netflix (on my Xbox 360) lets me do that.

The interesting thing for Netflix as they raise prices will be finding out where people's threshold is for paying for the convenience and licitness of Netflix versus downloading a torrent instead.


>since it's quicker and easier than torrenting.

That depends on your watching habits. I maintain a backlog of things to watch which I regularly refill. That also prevents me from wasting time on impulsive decisions - I plan ahead on what to watch. Besides, you can also use direct downloads to get the same advantages (almost instant playback) than streams.

>And if you have "unlimited" bandwidth, then the additional streams don't really matter.

I talking more about the big picture. The extended usage of streaming is, or at least will become, a burden on the infrastructure. It's unneeded traffic. It's the same as the push towards cloud storage - insanity, and not only from a security and privacy point of view.


You are not normal. What seems easy to you is not easy for the average person. Most people do not understand computers like those of us here understand computers.


I do not believe that Netflix could NOT have avoided this. The bigger they got the easier it should get to make deals. Netflix was a poster child who took down the goliaths of the industry. But as soon as they became dominant they forgot their roots. Don't apologize for other peoples mistake and insensitivities. They screwed up big time. Not because of raising the fee but showing that they can be insensitive and become arrogant as well. I had subscribed and kept the subscription even at times that we were not utilizing the service that much. Firstly it was not expensive, but more importantly I was thinking that I am subsidizing something right, an example of that those big corporations can be replaced with right choice of the consumer with the help of entrepreneurs. I felt betrayed when they raised their fee and only keeping the streaming service since then. As soon as I find alternative I'll nix that as well.


Not understanding your customer in this day and age when there are so many effective ways of doing so is inexcusable.


The content providers are going to keep playing these games until the only services left standing are companies they cannot boss around easily. This is going to kill small players and concentrate bargaining power and then come back to bite the content providers in the ass.

(In addition there's all the petty stuff you have to deal with when it comes to the content industry. From branding requirements, to arbitrary limits in video resolution, to who can encode what how and where etc. There are too many lawyers, too many spoilt brats and not enough people who actually care about the product)


And that's overpriced for the crap that's available to stream. Wouldn't it make more sense to increase the price of the streaming after the supposed improvement to streaming quality which will result from their hugely increased payment to content providers?


Like Tivo, Netflix defined a market and then proceeded to be crowded out of it by the content producers and distributors until there was nothing left for them. I'd be worried about any company with a similar business plan.


I feel bad for them too, but it's important to remember that if they don't work for the customer, then they're not a viable business. No sympathy necessary.


So, Netflix increased prices by a pretty high percentage and managed to lose only four percent of subscribers? This is astoundingly impressive. Furthermore, many of these deflections might simply be the result of forcing subscribers to explicitly choose to continue service. How many people kept paying a few dollars per month for a service which they did not use and, when forced to choose a new plan, opted out?


Four percent in a single quarter is huge, especially if it reverses a consistent growth trend.

Starz will be going away in Feb 2012, a few months from now. Dreamworks will not be coming online until 2013. Thinking Netflix's stumblings have been completely contained within the last quarter may be a bit foolhardy.


> So, Netflix increased prices by a pretty high percentage and ...

Except I have netflix and I am paying no more than I used to, and I don't think that my situation is unusual. The percentage of people who were impacted at all by the price change that chose to discontinue service is some number larger than 4%.


By their own estimates, 800,000 subscribers was only the start of the bleeding. If you read the article, it says they forecast losing up to 1.5 million streaming customers and up to 2.7 million DVD subscribers in the next quarter.


I was looking at purchasing shares in Netflix the first time the stock dropped. I believe at that time netflix was trading at 35x earnings. At the close today it was 30x earnings and now even lower in after hours trading. I never bought the shares because of the high multiple. However, I believe the current bad news is a blip on the radar in what will continue to be a tremendously successful company. Can someone explain if I'm evaluating Netflix wrong?

Others seem all over the map:

    Apple trades at 14.6x earnings
    Amazon trades at 105x earnings
    Microsoft trades at 9.87x earnings


P/E is only one metric and it's potentially very deceptive. You're using a PE that's uncorrected for expenses that are essentially investment in future business growth rather than a fundamental part of the business model. Amazon, for example, is hiring tons of new employees to build out its AWS business; that's a positive sign (it shows they believe that's a good investment) but in the short term it will drive down their earnings, because the cost of those employees is incurred now in exchange for business in future years.

So with Amazon, you have a denominator that's growing, and a numerator that's depressed by the investment in growth. That results in a very high PE.

MSFT and Apple, by comparison, are great companies but the market isn't expecting them to grow a lot (esp given how big they already are.) They're priced at a level where the market basically expects their earnings to stay steady going forward.

30X earnings is still not cheap for a tech company. It's in a spot where you'd have to look at the growth prospects, etc. to decide if it's a good deal.

PE makes the most sense if you're comparing very mature companies with similar size, growth and operating metrics. If that's not the case, it's not very useful.


Right, but Amazon is in a heavy infrastructure, heavy competition, low margin business. And their margins are small and getting smaller. 2% or so IIRC. They're less poised for explosive growth than Apple. On the other hand, they're here for the long haul.

Apple is spending a lot on infrastructure, but they're in a lower competition, high margin business. 38% margin IIRC. (yes, there's competition. But Amazon's competition is anyone selling anything, and Apple's is anyone who's managed to make a good smartphone.) The market hasn't been expecting Apple to grow for years now based on PE, they've been under 20 since the 2008 crash and growing their earnings like crazy. Their PE at the low point was 11ish, and now it's 14ish, less than the historical SP500 valuation.

For Comparison's sake, last quarter, Apple earned 6.8 billion. Amazon's net sales were 9.9 billion. Pretty soon, I'd expect Apple's profits to be bigger than Amazon's sales.

Something's not rational here. Might be me. Might be the market.


"Right, but Amazon is in a heavy infrastructure, heavy competition, low margin business. And their margins are small and getting smaller. 2% or so IIRC."

Amazon's gross profit ran north of 20% last quarter. (http://www.google.com/finance?q=NASDAQ:AMZN&fstype=ii) They're a dominant player in both online retail and cloud services, they're now providing cloud services to government entities, and they're growing like crazy. They're hiring like crazy and that's driving down their net income (I think they hired like 30% of their employees in the past year.) The market clearly believes they're on their way to double or quadruple their business over the next few years as more shoppers go online and more services go to AWS.

Apple is doing great, but they're 4X the size of Amazon in terms of market cap, and arguably at their "peak" in terms of everything going their way. They're going to keep growing, but they're already the largest company by market cap... are they likely to double? The market doesn't seem to believe that. Is that right? I don't know... it just seems to be what the pricing currently indicates.

Edit: It's also worth noting that spending on infrastructure does not have the same effect as spending on employees. Infrastructure costs are spread out over the life of the equipment, whereas payroll is expensed as incurred.


I'm totally in agreement about Apple being big, and I don't see them becoming 4x bigger than the next largest company. I think, from a financial POV it would make sense to spin stuff off, so that each part has a chance to become as big as the whole. From a synergy POV, that's daft. Apple gets a ton of benefit from being one unified whole. Apple's big issue now is to avoid replaying the sideways fall of microsoft in their own way.

Amazon's cloud services are small, looking like estimated 750 million this year vs something like 40 billionish sales for the year. Their expenses look roughly consistent on a yoy basis, the last couple of quarters are pushing up the r/d spending, but that's possibly the difference between quarterly revenue (strong variation within the year) and a constant increase in r/d. That might be shaving a bit off, but it doesn't change the nature of their business. Amazon makes most of their money selling other people's physical goods. They mark them up. They are competing on price with WalMart, Target, and the wholesale club stores. On the other hand, they're competing well with local businesses by shipping stuff for free and providing a consistent customer experience.

They're totally different companies. My rational expectation is that Amazon would be a low PE stock, and Apple would be high. I'm not going to short things waiting for the market to come around to my sense of rationality.


Amazon has nearly doubled their employee base in the last two years, and most of those hires were higher-paid "corporate" employees rather than fulfillment center hires. The expense structure may look the same but it's not, they've clearly explained that each time they do an earnings call and the market has backed them up on it - their stock has solidly outperformed Apple's for several years.

There's an earnings quality argument here as well: As a consumer electronics company, Apple's long term value is predicated heavily on their ability to stay "on trend" and keep delivering hot new products. Amazon doesn't have that pressure - whatever's popular, they'll be selling, and earning from things like government contracting are fairly stable as well. You get more market cap per dollar of earnings if those earnings are more likely to persist long-term.


I see their changes, now, with their latest results. It doesn't look like the market really expected the lack of profit though, so it will be interesting to see where the stock ends up soon.

I'd like to own amazon stock for the long haul, I'm just not into spending quite the premium that the market wanted recently. If they get beaten down enough, it'll be time to buy.


>For Comparison's sake, last quarter, Apple earned 6.8 billion. Amazon's net sales were 9.9 billion. Pretty soon, I'd expect Apple's profits to be bigger than Amazon's sales. Something's not rational here. Might be me. Might be the market.

Those two companies are quite the opposite from each other. One tries to lower prices as much as possible the other tries to charge as much as possible.


I thought the same after the first dip (was going to purchase at ~$150/share), but ended up convincing myself there was a stronger bear case to be made. Primarily, I considered:

1. Content producers control Netflix's ability to succeed; they could either support significant fragmentation across multiple service providers (allowing many entrants/competitors and driving up prices for their content) or distribute directly (eliminate middle men altogether)

2. Multiple competitors are or could potentially price much lower than Netflix streaming based on totally different business models; Amazon subsidizes streaming to drive sales in their core business and Google could do the same using an advertising-based model

3. Last point here is pretty subjective, but I didn't think Netflix was a likely takeover target by the majors (i.e. key competitors), especially given that Hulu is also on the block; Google already has platform, users and device-level distribution through YouTube and Amazon has much the same, in addition to already profiting from Netflix's growth (through AWS)

I had problems making a long-term case for NFLX and the blunders of leadership further eroded my confidence. I'm not sure the stock is truly worth about 1/3 of what it was a few months ago, but I'm still not buying it.


I jumped in at $86 after hours, with only 100 shares. They just simply got decimated after hours, but it felt pretty overdone, especially with only losing 800k customers. Seems worth it to take a stab.

That being said, the business model is doomed. They don't control the content, so they are essentially a technology company. Their technology is great, I had them for a few months, but unless they own the content they will continue to get gouged by content providers. It's a no-win situation for them.


When a drop in stock price is disproportionate to the available news, then you can be sure that the real cause of that drop is due to major players and insiders getting out because they know more than the public does and more problems are about to come out.


I'll have to check my datafeed, but it doesn't seem like there was a disproportionately large amount of volume after hours.

The major players and insiders don't get out after the earnings release, they get out weeks before during the distribution phase. Most after-hours action is algo-bots and retail investors.

The real action starts tomorrow morning, so get your popcorn ready!


$300 down to $80 in a span of a couple of months on news of a known/expected 3-5% of users leaving, while profits are increased, I would say count as "disproportionately large".

The way insiders work is like this... If they know they need to get out, but can't due to SEC insider rules (you can't sell a stock about to tank "just because", without getting in trouble later on), they take the first public opportunity to do so... On the release of any public bad news, that way their asses are covered.


Catching a falling knife can be dangerous (literally or metaphorically).


But catch it right and you dont need to wash it.. okay that didnt really make sense but I've been lucky with a few stocks that got heavily (over)sold in AH and gaped up significantly at the open.

If you grabbed 500 shares of NFLX in AH and it opens at 91 that could be an easy $2500. Super high risk though YMMV.


P/E ratio is one representation of how the market sees the company growing in the future. It's honestly an "emotional" number.

While Apple continues to defy the pundits, it _is_ difficult to see their profits become, say, 5x over the next ten years (since they already rake in $100B+ in revenue). Also, one could legitimately argue that Apple has real competitors in every business they are involved in (PC makers, Android, Samsung, HTC, etc), and that their markets are inherently saturated (of course, one can argue otherwise too).

Meanwhile, I suppose people see more growth potential in Amazon, because the ebook market itself is still growing, and their EC2 service is coinciding with the growth of hosted deployment of services. At the least, I can see how it's easier to trick yourself into thinking Amazon will have a stronger growth trajectory (it probably helps that Amazon's revenues are somewhat smaller at ~$30B). It also helps that Amazon has become a monopoly in their core business of online retail (with perhaps ebay being its main competitor), and application hosting seems (to me) a duopoly between EC2 and Rackspace.


Honestly curious, where did those users go? Back to $40 shitcable? Torrenting?


I'm willing to bet that a lot of those users, like myself, said "I've had these same 2 dvds for the past year. The streaming selection pretty much sucks and I end up watching B-movies when I'm bored because nothing I want to watch, and haven't seen before, is in their library. I should send these 2 dvds back and cancel".

I've long switched to itunes or Amazon when I want to watch movies because they tend to have the movie I want, when I want it, and I can download the whole movie before watching, thus not having to deal with netflix's lag-burdend craptastic streaming service.


Of course, you don't really 'own' the movies through iTunes or Amazon either. And Netflix's stream servers have plenty of bandwidth to serve up. I use it daily without issue and HD programs, so it's not the servers. More likely, it you're internet connection or their overburdened peer connection to Netflix's peer. Either way, not something really in their control. As most internet service is getting more unreliable (instead of less), this isn't that surprising.


No where did he mention concerns about owning a movie. I personally can really only stand to watch a movie once, I don't really care to own a movie.

As for his internet connection, that probably should be Netflix's concern. Most people aren't going to go through the hassle of changing their ISP for Netflix & it would be rather silly to expect him to continue paying for a service that doesn't work with his ISP or his viewing habits.

Netflix needs to be more aggressive with ISPs & content providers. They've seemingly rolled over time & again to ISPs & content producers while irritating their customer base.


I thought of that, and pretty thoroughly ruled it out both by testing on my super-spiffy badass link (100mbps synchronous over microwave ala webpass.com) and my girlfriend's spiffy 8mbps adsl2+ link through Sonic, neither of whom have a reputation packet-mangling like comcast.

Being a network-geek, and having been really bored one weekend, I took my macbook pro, and my girlfriend's macbook air (both of which have this problem) to a cage at equinix that I'd built out for a customer a few years ago. That network is equipped with a pair of cisco 6509's with sup2-msfc2s (old gear, but perfectly adequate for the task at hand). Each router has 3x 1gb uplinks to different providers (internap, time warner, and level3) running BGP. All of three ISP's peer directly with Netflix's AS. The problems persisted whether I was behind my routing, or statically routing by grabbing an IP on the /29 stub network each provider gives me to establish the bgp connection).

I tested both from behind my routing, and for fun, from my testing subnets (the stub networks) which statically route through their respective uplinks. Plenty of bandwidth, no mid-level ISP to insert QoS wankery. Same problems.

As for owning the movie, did that even come up in my previous comment? If so, then forgive me, it's not something I care about. In the rare instance (3-4x per month) where I want to watch a movie, I just want it to work. I don't want it to pause every few minutes to see a "buffering" screen. That's three steps backwards.

The commonality between both laptops is that they run os x( one on snow leopard, one on lion). I suspect silverlight is the real culprit, but I don't care. The solution would be to allow customers to buffer large chunks of the movie (20-30%) or download the whole movie before playing. Instead Netflix (probably due to being hamstrung by their agreements with content providers) tries to be too clever with variable bit-rate encoding and ruins the viewing experience. (even one pause is unacceptable in my book, let alone the 5-10 I often had per movie).

Whenever I discuss this with others, some people have similar quality problems, some people claim it works perfectly making me wonder if it's platform specific. Out of curiosity, are you running Mac, Windows, or Linux?

Also, the silverlight client has ridiculously bad volume control, I never quite understood why that is.


I suspect silverlight on os x is the culprit, too, because by clicking in the Netflix window I can usually get a spinning beach ball to appear when the video is frozen or stuttering. I recall Netflix working a lot better on my Macbook 6 months ago. (video playback in Flash in contrast has improved in that time.)


Netflix Instant works fine on my friend's iPad 2 though.


Netflix works a treat with my webpass connection on my ps3. Never stops or stutters.

That said, I'll probably cancel because there's nothing I want to watch anymore.


I have a bad internet connection (1.5 Mbit) and found that without using the whole connection I wasn't able to stream netflix and was still burdened with artifacts and terrible quality. Now to put this in perspective at a little over half my connection speed (~.8Mbit maybe it is less) amazon streaming works perfectly with decent enough quality and no stops to buffer or recheck my internet speeds.

So maybe I'm in the minority or maybe I'm not but I dropped netflix streaming and probably won't be going back unless cable or fiber internet comes to my area.


In my case, I simply went without.

Contrary to the way people seem to act, entertainment is neither a right, or a requirement. I get by just fine without movies or television shows.


Fair enough, but you could tell us what you do that you didn't used to.

I ride more, play board games, and read more.


I'm one of the 800k.

Essentially, I figured out that it was costing me $16/movie I watched, and that was before the price hike. So I cut it out, and given that I was watching on average, a movie every 2 months, I haven't noticed the difference. (and what's more, that's an average, and there was much more activity in a couple of bursts early one.)

Their big error for me was reminding me of the relationship between the monthly billing and how much I got out of it.

FWIW, this is the second time I've cancelled netflix. They'll probably get a third chance, if I ever feel like watching movies again.


If they are like me, they didn't use Netflix much and it just became an unnecessary expense. For those who use Netflix on a daily basis, I think the new price is still fair.


I'm guessing that's most of it: people with disposable income that were paying but not using, simply because they never bothered to cancel. All the news about the price hikes brought the small monthly expense to the attention of these people, and even though most could afford the higher price, it was just the nudge they needed to cancel a service they rarely use.


The B-grade content they started to put front and center lost me.

I just use hulu.com and other similar sites; Mac Mini connected to my TV.


Agree, it does feel like there is a lot of B-grade stuff on Netflix streaming.

Paradoxically, the unlimited movie buffet might be their undoing. There is a limited number of movies that are truly excellent and worth watching. Once you go through those good ones, you're left with the crap. Having unlimited watching quickly moves you from the good stuff to the crap, and then you cancel your subscription. Neflix faces a scarcity disconnect: its unlimited model says there is no scarcity but out in the real world good movies are still scarce.


I personally am amazed that people's queue is not constantly full. Right now I have 178 disks in my "DVD" queue and 87 titles in my "Instant" queue (including series which take one slot).

Maybe there's a ton of stuff that I don't "need" to watch, but I can always find something interesting. I really don't consider myself a huge movie lover either.


Hard to believe you have that many movies in your Instant Queue. Is this Reed Hasting? I admit that I find a unpopular movie that I enjoy sometimes. But I mostly sit through 5 boring unpopular movies before I find a gem.


LOL - no I'm not Reed Hasting. I just throw stuff in there that I hear is good. I don't watch everything all the way through if it's not.

I watch about 2-3 movies and 2 TV shows a week though so it does take me a while to get through my queue.


Over the weekend I watched Time Bandits with my 8 year old. How can you beat that?


You kind of have to do that to make Hulu and similar sites actually work in the living room due to the ridiculous licensing restrictions on a lot of their content disallowing phone/Xbox/360/Wii/set top box usage.


Yes with a Mac Mini connected to a LCD TV you have a ton more choices(hulu, cbsnews.com/video, tv.com & others).

It's not the same user experience as a TV, but for me it's better. It allows me to watch/listen to shows/movies in one tab while reading articles, instant messaging friends & other things within other tabs.


Honestly curious, where did those users go? Back to $40 shitcable?

RedBox for Blu-Ray.


We rent movies on-demand via either Amazon (streamed through my TiVo) or via AppleTV. It gives us access to stream new movies with a pay-as-you-go pricing structure which is more in-line with how many movies we watch (probably one a month, if that). For us, Netflix was never a replacement for cable because there's still enough live content on cable we wouldn't get via Netflix, or without having to jump through hoops to easily get onto a television.

Netflix made the catastrophic mistake of reminding their customers how much they were paying for their service at the exact time new content was back on television ... then did it again a couple weeks later. They couldn't have executed any worse IMO.


I've done a few things after cancelling Netflix.

In my case, it was so rare that I got DVDs that it wasn't worth the cost of continuing that. I've just dropped rented DVDs from my viewing all together (though there's also a Redbox that I go by every single day so that's an option).

As for streaming, most of what I want to watch I can also get for free via Amazon Instant with my Amazon Prime account, which I would be paying for anyway and the occasional movie or show that isn't included free evens out to no more than I was paying for Netflix.

I also realized that I would watch a lot of TV shows on Netflix and then buy them on DVD/blu-ray at a later date, so I just buy the DVDs/blu-rays, which requires a little more patience (box sets are expensive so I don't buy them everyday) but it turns out that waiting a month or two has no significant impact on my life. ;)

Shows that are currently airing, some documentaries, kids movies, etc. we watch on Hulu for free. They only offer the last 5 episodes of the season on the free account, but if you don't get behind, that's all you need.


I don't understand why you'd buy DVDs and Blu-rays knowing they will soon be obsolete?


I think "soon" is a bit overly optimistic. DVDs are on the way out, yes (though a lot of TV shows are still only available on DVD), but I really don't see blu-ray going anywhere for a while.

Besides, I like having the physical media, even though it's not the most efficient, and I don't think I'm alone in that. I think it probably appeals to a lot of consumers.

Anyway, it doesn't really matter if they become obsolete in a year. The ones I've purchased aren't going to suddenly stop working because the technology has moved on and the players will be around for a long while for this reason. Heck, you can still buy a VCR for about $40 and VHS tapes have a much shorter life than a CD. When the players start getting hard to find or too expensive, it will be a simple matter to transfer the contents of said disks to a hard drive.


You're assuming they were cable-cutters, which is common around here but still uncommon in the wider market. More likely, they had both cable and Netflix (maybe were testing the waters) and when the price change hit, they dropped the Netflix and stuck with cable.


I have both Redbox and those Blockbuster kiosks on my way to and from work (during the part I walk) and so I can get a $1 DVD when I want rather than managing when something will arrive.

I can get a lot from my library. While I don't get to always choose the timing for inter-library loans, I can get a season of television for two weeks at a time. With Netflix, I just get individual DVDs.

Some of the things I want to watch are already online for streaming like South Park. There's a lot of content on Hulu as well and network sites can be overlooked as sources of content.

I think the price hike made a lot of people think about how they used Netflix. When it was a combined service, people thought "oh, I'm getting this interesting combined service" and ended there. Now people are seeing $16/mo for 3-DVDs at a time and wondering. In order to get to the $1/DVD level, you'd have to get 4 per week. I think a lot of people didn't have that high a velocity of DVDs. You get one shipped to you on monday, it arrives tuesday, I find that there's usually at least 2-3 days of it being at my house between finding the time to watch it and forgetting it in the morning, it gets into the post on thursday or friday, gets to Netflix friday or saturday, and basically you've got a week turn-around time. And if you're getting multiple out at a time, it's hard to watch that much content - and watch it consistently month-to-month. Likewise, I think that people ran through a lot of the streaming content. I also think that the on-demand streaming just doesn't allow me to find things well. It keeps showing me the stuff I've already seen and things it thinks I'm going to rate as 2-3 stars. I understand that Netflix went to this less-search, more-browsing interface because their streaming catalogue isn't complete, but it keeps showing me things I don't want to watch and on rare occasions I've had friends tell me about things I didn't know were on there.

So, I think people have been taking stock of Netflix. Netflix raised their prices a mere 9 months prior on them and then again. 3 DVDs plus streaming went from $17 to $20 at the start of 2011 and then from $20 to $24 at the end of summer 2011. For me, there's a genuine feeling that these price increases might continue. I mean, if Netflix goes up another 40% over the next year, that's getting pretty close to "$40 shitcable". Likewise, I surveyed my other options and found them better. I can get a whole season of TV at a time from my library for two weeks. No worrying about how quickly I get disks back into the mail or being annoyed by not having the next disk. New releases I can get from kiosks the night I want them and drop them off on my way to work the next morning and only pay $1. A decent amount of programming is streamable online. Maybe that isn't for you. It's working nicely for me.

I have no hard feelings for Netflix, but I find this works better for me while being cheaper. Their streaming collection held my interest for a while and then began seeming like the re-runs of shows in the 6-8pm time slot - sure, they could be good shows, but they weren't necessarily what you were looking for. For me, Netflix solved the problem of rental stores charging me $5 for a DVD. For basically that price, I could get 3-DVDs at a time. Now I'm finding that I can get a $1 DVD from a kiosk (and can often get coupons for those machines) and grab it when I want on my way home. My library can provide me with deeper selection and it costs me nothing (I have to pay the taxes whether I use it or not) and I don't feel as on-the-clock as I do with Netflix. If I return one I didn't watch, well, I can get it again some other time and haven't lost anything - which isn't the feeling I get from Netflix.

I'm not saying they're a bad service or it shouldn't work for you. I just think there's increase competition from cheap, kiosk-based rentals and that people have been taking stock of how they use their Netflix and finding it a bit lacking. I mean, if you've kept the same DVDs home for a month and haven't watched them, that isn't Netflix's fault, but it does mean that you aren't enjoying a lot of value there. A price increase simply brings that to your attention and makes you think about eliminating it from your expenses.


+1. Why can't the figure out a pricing point? Shouldn't the marginal cost per user be going down as they scale? What's wrong with their infrastructure that it's going up? Or are they just trying to price it for demand? That doesn't make much sense to me if they're pricing away customers in the middle of the growth stage.


Netflix doesn't have fixed costs. As they become more popular, licensing becomes more and more expensive and it becomes easier and easier for content owners to jerk them around for their own benefit.


But don't content costs scale on a linear trajectory? Cable companies pay $x/subscriber for a channel - each additional customer doesn't add to some cost multiplier and profit goes up with revenue and cost of content.

Is Netflix so at the whims of content providers that their model is so much different? It seems like a completely broken business if they can't find scalable ways to make their content providers money.


> But don't content costs scale on a linear trajectory? Cable companies pay $x/subscriber for a channel - each additional customer doesn't add to some cost multiplier and profit goes up with revenue and cost of content.

Netflix doesn't do that, though. There are no channels to speak of, so there is no middleman to negotiate with, there is only the content providers who see you as small peanuts when you're little and a looming, direct threat when you're big.

The way Netflix deals work (at least from what we can gather from public articles about the subject) is that Netflix pays a fixed cost for x streams of y content from z provider, with a time expiry for the overall deal. Once the collective user base has used up that streaming bucket or the time has expired, Netflix has to re-negotiate to fill it again.

In other words, in 2005 when Netflix only has 500k subscribers and online video is impossible to monitize, handing them a multi year exclusive deal with a 5 million streams for $100 million (pulling these numbers directly out of my ass, just to be clear) is no big deal, you just made $100 million on something that was formerly worthless, good for you.

However now it's the year 2011 when advertisers are paying better money for online ads, online viewing is exploding and eating into your traditional sources of revenue, and Netflix is riding their 2005-era deal all the way to the bank. Now letting them get away with that deal is viewed as tantamount to content theft in the eyes of the providers. Suddenly to secure the same deal you got for $100m, will now cost you $500m. Multiply that by every content provider in the industry, and you can plainly see why Netflix is stuck between a rock and a hard place right now.


They're trying to push people towards streaming which is the future by making DVDs more expensive.


We had the 1 dvd at a time (+ blu ray option). So, for us the price jump was close to double. Our last DVD sat on the shelf for 3 months before we got to it. But we watch streaming a lot. So we canceled the DVD option and figure that $8-9/mo we'll use at the redbox near us if there's something recent we want to watch. That's more movies than we can watch anyway (or that we can get via netflix with the mail delay)... I'm sure a lot of the 800,000 were like us.


I went to the library.


I guess 1channel.ch. I watch on average one movie per day and I can tell you those Putlocker links work just as well as DVDs.


They upped their device count to a whopping 50. A lot of those users (myself included) are simply sharing accounts.


I went back to Directv. I was already missing sports, so this move pushed me back in that direction.


they can download from itunes, amazon and blockbuster via their tivo, etc. netflix never had a decent selection of titles available for download, somehow AMZN does much better.


YouTube for me. Although I would have continued to stream Netflix if that was an option.


I'd prefer having less total movies for streaming if they cut out all the B-movie crap. Or give us a [never ever ever show this again] button.


I would pay for the "don't show me this again, ever" button.


Does rating a movie "Not interested" not accomplish that?


Unfortunately no. Netflix has been recommending "Hitch" with Will Smith since I've been a member. 8*(


The greatest scientific minds of your generation have determined that you will probably love "Hitch" starring Will Smith. Submit to the inevitability of getting Hitched.


I have friends who were outraged at Netflix price increase. And I mean serious outrage.

I did notice that the ones who were really outraged are running tight on money. One of them works and goes to school full time so an extra $8/month after tuition, rent, even though it's marginal seems like a LOT and for no additional benefit.


I think a lot of the outrage came from people learning about the price increase, learning that Starz was going away & then on top of that learning that Netflix was going to destroy the convenience aspect by separating the services. Regardless of the costs, it just seems like Netflix kept eroding the value of their service while asking more for it. Plus how they relayed this information seemed like a mix between condescending & manic.


Outrage seems like a funny response to a price increase for a no-lock-in, non-essential entertainment service.


Yeah, that's what I said. People take stuff for granted sometimes.


I canceled my subscription. Not because of the price increase but the cavalier manner in which the increase was communicated. The presumptuous email re: the increase really pissed me off. It has also made more more careful with communications with our user-base.


Also, link to Netflix's Q3 Investor Letter, which is a good read: http://news.ycombinator.com/item?id=3151463


Poor site redesign followed by a price hike followed by a pointless attempt at splitting up the company.

Not surprised.


There was, most definitely, a point to splitting up the company. It just wasn't communicated effectively or presented at all in a positive light.


The price hike didn't bother me. The company split would be annoying, but not the end of the world. It's the terrible UI design of the new site that has me looking for alternatives.

It's so bad. Do they actually think that this UI is functional, or is there some kind of internal fear to question it?


The whole redesign seemed engineered to hide the fact that they would be offering less content going forward.

That's when I hit the 'sell' button, personally.


Indeed, the way movie covers scroll is really frustrating.


cookiecaper is on to something when he says that Netflix needs to offer a white label service - but it goes deeper than that, and there is one very stupid road block to seeing it happen.

In order to obfuscate the entire business model and tie up legal battles, content providers consider streams to an iPhone, an Android device, a PC, a Mac, a PS3, a blu-ray player, and an internet TV to be completely different services - and the content providers want different rates and pricing to each device.

A stream is a stream is a stream is a stream! (...imho)

This is the major reason that Netflix hasn't yet been able provide an open streaming API and the real reason TV hasn't seen the explosive changes that music and mobile phones have seen over the past 15 years.

Almost all video services feel ancient when you're watching them - the user experience is marginally better or improved over what our grandparents were watching 50 years ago.

Where is the bottom line streaming my Twitter lists relative to the genre I'm watching? Where is the onscreen chat with my wife when we're in different cities when our favorite show is on? Where are the annotations on movies from friends, celebrities, and critics? What did my favorite sports writer think of the last play?

Why is the biggest screen in the house so dull? Why can't I buy once and play anywhere?

TV can and should be so much more, but content providers would want $2/user for every incarnation of each feature I described above - because to them, a stream isn't just a stream isn't just a stream isn't just a stream.


It is really incredible how the things are going for Netflix. Three/four months ago I was discussing with my father about shares he wanted to buy. He was losing some money on RIMM and I suggested him to buy Netflix, telling him: "Hey dad, they have the control of the streaming offer online and they are heading where the future is...no more DVDs, all streaming".

I was lucky that my father did not follow my advice (otherwise he would have killed me, eheh) and now I see the problem. As a subscriber of their streaming service, it is always very difficult for me to find something interesting in their catalog. I am also a subscriber of Hulu and I use Hulu daily for all my TV shows needs. When I want to watch a movie, Netflix does not offer me anything interesting, Hulu does not have a big catalog and I end up getting DVDs from Red Box.


Hastings should have stayed the course with his decision. Can't just impulsively react to every analysts opinion and run your company that way. Raise prices as needed, you will lose subscribers in the short run but in the longer run you will hopefully keep providing better content and will then start gaining subscribers. They also maybe should have made a play for Hulu.


I actually respect the CEO very much who realizes he has made a wrong decision and backs away from it. It shows the type of humility that almost no one in that position has. Furthermore, companies exist to make customers happy, so if the customers were unhappy from this decision I can hardly blame him for reversing it.


I am always amazed to hear that Netflix customers are outraged (!) by having to pay a whopping $10 to receive unlimited access to online streaming on demand. Really, if you can't afford $10 to sit infront of the TV and watch movies all day long, maybe you should get out there and find a real job instead of sitting on the couch.


I vowed never to use Netflix again when I realized they cancel your subscription instantly instead of giving you the month you pay for (a la WoW or any other properly run service). I also take every opportunity to bad mouth them for this awful business practice. Yeah, it's in the terms, but it's shit.


In general, I question the "network effect" and how strong it really is here in this industry.

People always say that in an ideal world you'd have only one provider for streaming movies, but I actually see this going the other way...as in multiple providers (e.g. HBO) that stream their own content. I don't think this affects the user experience as meaningfully as people claim. I think people in general are used to multiple providers and are much more willing to accept it. Just look at how many apps people have on their iPhone. Plus it's just a lot easier to play with the content providers in a more vertically integrated model.

One path that I would wish Netflix to keep going down is becoming a distribution channel for foreign movies.


I wonder if this includes customers who've put their account "on hold" rather than canceling. My wife decided she didn't need it anymore, but may someday want to go back. She's effectively cancelled, but the account still exists in their database.


Their main competitive advantage was their physical delivery infrastructure, which is very hard to replicate. If the DVD business dies slowly (as Hastings said it will) and is replaced by streaming, they are left with no competitive advantage. There is a good many companies that have the infrastructure to stream a large amount of video content (Amazon, Google, Akamai, etc). All of these companies will lack any competitive advantage , and will be squeezed to the last cent by the content providers, leaving them with just enough cash to run their infrastructure. This doesn't sound like a great business model.


I would argue their presence on millions of DVD players and gaming platforms is now a solid competitive advantage. There are only two streaming services on my blu ray player, and netflix is one of them.


Sorry if this is OT/ a foolish question, but has the content available from Netflix Instant also gotten worse recently?

I have a subscription but am not really the person who uses it at home and for the fist time in ages tried using it last night and couldn't find the movie I wanted, the "instead of" recommendations were ridiculous, and all the "new releases" were just totally lackluster.

Have I missed something else beside the Qwikster debacle? Or is what it's showing me algorithmically based on what my wife and kids are watching?

If not, I can see why people are canceling in droves.


That leaves 23.8 million, and even though you might do weird extrapolations and predict they're gone in 2.5 years tops in reality it is amazing that they managed to do this and only lose a percentage that small.

Given that the majority of the 'leaves' will do this right at the front the next quarter will give you an idea if this is going to be the end of Netflix or whether they just managed to substantially improve their margins.

I think it is too early to call.


This shows that when consumers band together they can make a difference in corporate America. I wish we were more united in standing up against other products that are, 1.environmentally unfriendly (petrol) 2.abusive (child labor in Nike Sweatshops) 3.cruelty to animals (chicken farms) Sadly, I think most consumers only united when it's hurting their pockets. Otherwise, they turn a blind eye.


Uh, isn't that only domestic subscribers? Looks like internationally they gained 510,000 over that period, making it net 300,000 loss.


People seem to look at this and see it if Netflix would not survive this. The difference between Netflix and cable companies is that Netflix doesn't tie you into a 2 year contract.

Try cancelling your cable as fast as you can with Netflix.

The reality is that cable companies are starting to suffer from Netflix and the likes of it. Their slower decline will come to a surprise to many.


So, they lost 3 to 4% of their customers - that is not good.

That said, my wife and I each have our own streaming accounts and I also have blu-ray delivery on my account, and Netflix is not losing our business: we really like the service.

Also, with their price increases, I don't understand why the stock took such a big hit.


Curiously while this news is bad for Netflix it is really really bad for someone else: cable & satellite TV providers. Customers now expect to be able to watch whatever the heck they want for about $10 a month.

While I don't fit in that category, I do expect to watch whatever the heck I want. I no longer have any tolerance for television commercials or waiting until next week for a new tv episode (might as well wait until its over and watch the whole season.)


My 2c. Netflix was trading near a 40 P/E. This usually implies that the stock price is based on a belief about a huge future growth and that they would continue adding large numbers of subscribers every month. When they reversed the trend, they could no longer justify a high P/E, so the stock switched to be priced as a slow growth and riskier stock at a lower P/E.


Fear, Uncertainty, Doubt. I expect it to climb back, and will probably be putting money into it when the panic settles.


Wasn't Reed Hastings named CEO of the year last year? $300 to <$90 in around 4 months. Hmmmm....


To be absolutely fair, though, NFLX should in no way, shape, or form be worth anywhere near $300 a share. Even $50 is pushing it.

I'd think settling somewhere between 30-40/shr. is a good premium. They have to have multiple pipelines of revenue aside from "streaming non-recent movies and tv shows."

Here's a strategy they can try: If they can score some day-after-airing TV shows a la Hulu and have them available for 30 days, then moratorium to let the studios "monetize" the episodes in reruns and in syndication, then "re-release" them in streaming the entire season, that will be something. They can angle it to subscribers as their own personal "Tivo". They can pay content owners per viewing, as Spotify does with music publishers.


> I'd think settling somewhere between 30-40/shr. is a good premium.

$30-$40/share would give it a P/E multiple of between 7.5 and 10. Netflix has trailing 5-year EPS growth of around 35%. You may hate the company and the stock, but $30-$40/share would have it trading at a discount to other companies with similar growth histories. There's no case to be made for $40 being a premium for NFLX.


Netflix loses 800,000 subscribers = Piracy gains 1,000,000 subscribers


why am i not surprised? a huge price hike in the middle of a struggling economy.

I do feel bad for Netflix and i hope they recover. it was just a one-time bad business decision behind a great brand name. what a costly learning lesson for the ceo!


CEO sounds like an idiot, unlike his customers.


How is the CEO not out of a job yet?


Legit question, regardless of the downvotes. The answer, as far as I can see, is that founder and CEO Reed Hastings still has enough clout and power within the organization and its board that he can hold onto his position. However, he's got a lot of repair work to do, and I think he knows it.




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