Wednesday, October 26, 2011

The Decline of Netflix

Reed Hasting’s company, Netflix, has suddenly taken a big hit. Until now, Netflix has been flourishing. In July, the price of Netflix stock was around $300. Currently, it is trading at $79. What an outrageous drop! Along with the price change, Netflix has approximately lost 800,000 subscribers ion comparison with last quarter. Why has this happened? The old Netflix plan included Internet streaming and DVDs by mail for as low as $10 a month. In September, this same package costs $16 a month. Since there is such a high demand for Netflix a price increase is inevitable. Netflix has been growing non-stop and with this comes more expenses to pay. Paying $10 a month was not enough to keep Netflix running. The company needed more money to license additional material for online services. Reed Hastings increased the price too much in a short period of time and this startled subscribers. His price increase strategy was very poor in which he scared off customers. Even though Netflix is in a shaky position, I think eventually the company will rise back up. Netflix has little competition in online streaming and is by far the best quality.



6 comments:

chris cole said...

I agree with you dillon, the price increase strategy Hasting's made was a bit high, and probably could have started the increase at maybe $12 or $13, instead of $16. It is hard to believe that 800,000 subscibers were lost, but, because of the financial situation some people are in, it would make sense that a large number of people have unsubscribed. I also agree with you that Netflix will eventually gain the subscribers they lost back, especially if they decrease the price even just a couple of dollars.

woodyleonard said...

I definitely agree with you on the fact that costumers will return to Netflix. I think they will return because, there are no other major online movie renting companies and costumers will have no other choice but to pay the higher price. I also think that the shock of the higher price will also wear off. Another possibility that I think could happen is that we see the takeoff of a new major online movie company. Either way I think that this will benefit consumers in the long run, because Netflix will be forced to make better choices.

Jacob Burdett said...

I agree that it was the right decision to raise prices because of the incredibly high demand, however i think the six dollar increase in price for the same exact service was a bit drastic. If Netflix added a new feature or something of that sort then the six dollar increase would be acceptable. I believe that they should have started with a small increase like Chris said, and raise over time. Also, other companies such as Blockbuster, Dish, and Hulu are taking advantage of this by offering similar services for a lower price. For instance, Blockbuster now offers a Blockbuster Movie Pass which includes access to 4,000 movies and TV shows to stream instantly to a computer for $10, the original price of Netflix's plan. If the competition from other companies proves to be too great, Netflix will have to comprimise and lower price.

jack attack said...

reed hastings of netflix should've given customers some sort of warning that netflix wasnt making profitor enough money to keep the business going. making some sort of commercial explaining the situation so subscribers wouldnt be insulted when they looked at the bill and realized they were paying 6 dollars more, 50 dollars more per year. netflix could also make some sort of optiond for customers like making a gold and silver package allowing customers to chhose what the want versus how much they pay. microsofts xbox live has this type of option.

Niko P said...

I think that since Netflix has raised their prices and lost so many customers, that another competitor will try to enter the market and take advantage of this situation. Blockbuster is offering a $9.99, Netflix's previous price, a month for unlimited movie rentals. This new price for Blockbuster will encourage more people to buy from Blockbuster as a substitute for Netflix. If Netflix slowly raised their prices over time their stocks wouldn't have dropped and they could have continued to gain more customers.

Blair S. said...

Dillon, I agree with you on everything except the company rising back up with the current state of the price for Netflix. It is very evident by how many people stopped subscribing to Netflix that the price of the package was increased too much. I understand Netflix raising the price because of the quantity of demand. The people didn’t mind paying $10 to get the package so Netflix thought that an increase in price wouldn't change the peoples’ wants that much. If Netflix had done a better job of researching what the price of the package should be, they would have realized they needed to lower the price from the current price. Instead of pricing it at $16 maybe they could cut the number in half and possibly have saved half if not more of their customers. With the price being what it is now they have created disequilibrium in the form of excess supply. Now they will have to inch back to equilibrium by decreasing the price until they get to a quantity of subscribers that makes them revenue. As you can see by the substantial drop in subscribers a lot of the people’s wants were elastic to the change in price. Therefore if Netflix decreases the price they should increase the number of subscribers closer to their original number.

Blair S.