Netflix made a strategic move to shift from DVD mailings to a streaming model, but did they expect the backlash. By pricing the DVD/Streaming subscription package 60% higher, Netflix was in fact telling subscribers that the future was not mailing. At the same time, they cut the cost for subscribers who only took the streaming option by $2 a month. Clearly a pricing strategy designed to move customers toward streaming. But in the analysis, did they anticipate and account for those customers that would drop the service entirely?
"The Los Gatos, Calif., company now believes that its domestic streaming business will total 9.8 million customers versus its July 25 estimate of 10 million, while its DVD business would also be down from 3 million to 2.2 million." That amounts to a decrease of one million subscribers. A hard pill to swallow especially when content deals, like the one with Starz, have dried up. Content drives the model, and exclusivity of content helps to beat competition. And while Netflix is taking a hit, its competitors are trying to reap the benefits. With Redbox offering an inexpensive DVD model, along with Wallmart, Amazon, Apple, and yes, even cable VOD, competition is only getting fiercer.
Only Netflix can answer whether this customer hit was within their range of expectations. It is unlikely that Netflix will reverse their strategic position. The future for them and others is a streaming model. But now Netflix must go back into their planning stage to determine how best to win back those lost customers and how to grow as the leader in the space. Choices range from partnerships with retailers like Target or Barnes and Noble to offer a free month of streaming with purchase or even to take the partnership to a more corporate level. Content deals remain essential to success. Opportunities with Tribeca Film or other Festivals to share indie films with customers. And don't forget an ad model to further improve the revenue stream.
It is not the end of the world for Netflix, only a bump in the road. The future of rentals is streaming and Netflix has only pushed for faster change.
