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Netflix Price Hike 2011: One Subscriber’s Perspective

August 3, 2011

On July 12, I had all but decided I was canceling my Netflix subscription. After receiving this email detailing the company’s decision to split their streaming and DVD plans, I was fed up. The price of my plan had increased already just last November, but this time the increase to keep my current plan was a staggering 60 percent.


I was far from alone in my frustration. By the next day, a matching 60 percent of Netflix subscribers said they planned to cancel their subscriptions with the company. The damage wasn’t just financial.

In the days before social media, outcry over the price increase might have fizzled out quickly. Frustrated consumers like me would have vented to their friends, and if they were really irritated they might have written an angry email, but eventually things would have settled down. However this is the age of social media and as a result the backlash went far beyond a few customer service calls.

In the first week following the announcement, 4,000 comments were posted on the Netflix blog-- a number that seems insignificant in comparison to the more than 79,000 responses to the company’s Facebook post announcing the change. The number now stands at almost 81,000, and an overwhelming majority of those posts are negative.

To their credit, the company seems to have planned for the negative reaction. On a phone call with the Wall Street Journal, Netflix CEO Reed Hastings said the response was actually better than expected.

“Believe it or not, the noise level was actually less than we expected, given a 60 percent price increase for some subscribers,” Hastings said. “We knew what we were getting into, we tried to be as straightforward as we could, and that has worked out very well for us.”

“Very well” might be a slight overstatement. Although Hastings insists they knew the backlash was coming, the damage to their consumer perception is significant, as quantified by this BrandIndex research graph:
 
 
 
 
With one announcement, Netflix managed to fall from a comfortable berth as the top dog in its competitive set to the bottom-feeder of the group.

It’s reasonable to expect the fallout from the price increase to fade over time, and in fact, the number of subscribers expected to cancel their plans has already decreased from 60 percent to 12-15 percent. For the long-term goals of the company, separating the streaming-only service that Hastings sees as the company’s future from the more niche DVD mailing service makes sense. But the sharp reaction begs a few questions. Was there a better way for the company to handle the situation? And where do they go from here?

Perhaps the best way to earn back favor in the eyes of consumers is for NetFlix to improve its products. This means building its scant catalogue of streaming media - something the company has been working hard in recent weeks to do. Since raising prices, Netflix has announced that Mad Men, Miramax and Revolution studios films, and CBS and Showtime programs including Dexter and Californication will be added to their streaming content. Talks are also in the works on a deal with DreamWorks Animation. These significant improvements to the company’s online content could help convince members to keep their streaming subscription.

As for me, I’m at least considering keeping my subscription now, and I have a feeling many other subscribers will eventually calm down as well. While I’m unhappy with the way they handled the announcement, the fact remains that other video streaming services just don’t compare to Netflix. Throw in Netflix’s message to consumers that it is making strides to improve its service, and try as I might to stick to my guns, I will probably stay a subscriber. It remains to be seen whether the strength of a product can completely make up for PR blunders, but it’s an interesting topic to consider.