September 16, 2011
By the ZippyCart Content Team
Earlier this summer, Netflix announced that they would be splitting their most popular movie rental plan into two separate plans. Previously, users would be able to get 1 DVD in the mail at a time, and watch unlimited online streaming content, all for under $10 a month. Now, the plans are seperate, and unlimited streaming will run $7.99 a month, and users must pay an additional $7.99 to receive DVD’s. Now, the ecommerce solution is struggling, and reported today that they are losing more customers than expected as a result of the price hike.
According to Neflix’s Q3 projections, the company now expects to lose around 1 million domestic customers as a result of the price hike. That may not sound like a lot, but the ecommerce solution anticipates a new user base of 37 million subscribers, which would mean they lost 2.7 percent of their business to the price hike and splitting of their plans. What’s more concerning is that the guidance for streaming customers was only revised down by 200,000 subscribers to 21.8 million. But on the DVD-only side, Netflix’s forecast was revised down by 800,000 subscribers. This would suggest that the company seriously over-estimated the popularity of the DVD by mail option. The move was presumably made to prolong the lifespan of the DVD by mail program, which was what Netflix was founded on.
Despite the fact that streaming content is still relatively young, and features less available content than the DVD rental program, the popularity continues to rise. In fact, Netflix only anticipates having 14.2 million DVD only subscribers, compared to 21.8 million streaming. Ecommerce solutions have spotted the trend, and are moving towards the elimination of physical media as a result.
The question has been asked why Netflix chose this time to split their business. Some have said that the ecommerce solution may be preparing to cancel its DVD service entirely, and the split was intended to move people to the streaming option (it’s working!). On the other hand, many times businesses will separate their offerings to appear more streamlined and appeal to potential buyers. With Amazon’s streaming video service on the rise, and more and more content being added daily, it’s possible that Amazon would be interested in purchasing Netflix. Amazon is also currently working on an “iPad-killer” Kindle tablet, which would feature their streaming services. Adding Netflix to their exclusive content would be a big blow to the rest of the competition.
The popularity and sheer number of media streaming ecommerce solutions is quite impressive. Hulu Plus is another close competitor, as is the Blockbuster-branded streaming subscription service from Dish Network. There are more choices than ever for viewers who want to access streaming content via an ecommerce solution. Amazon is also looking to start a program offering e-book rentals to its Kindle customer base. This would allow subscribers to rent Kindle books and return them when they are done, which is similar to the Netflix business model. The elasticity of these services is also quite remarkable: many people view Netflix as a “fun to have” service, and not as a necessary good. So when the cost to own rose, and the number of competitors also rose, their stock price and their subscriber numbers suffered.
Taylor is originally from Washington, DC, but has lived in the Seattle area for the past 5 years. He’s a senior at the University of Washington, studying Political Science (with no interest in entering the political world). He’s more interested in the Tech industry, especially consumer electronics, cloud computing, and how mobile internet and devices will change the business world. He spends most of his free time tinkering with his Subaru and surfing whenever possible.
