Netflix Blunder Could Cost It 30% of Subscribers: Study

Netflix may lose almost a third of its current subscribers after bungling the split of its DVD and streaming plans, according to a survey by research firm Frank N. Magid Associates, which plans to present these figures at the Goldman Sachs media conference Wednesday.


Netflix , one of the hottest stocks during the two-year bull market, said in July that it would be splitting its unlimited streaming and unlimited DVD-by-mail plan, forcing current subscribers to choose one of these plans for $7.99 or pay $15.98 for both. The move, essentially a 50-percent increase, came a day before the stock hit an all-time high.

Sixteen percent of those surveyed are likely to cancel in the next six months, according to Magid’s survey of 1,000 U.S. consumers completed at the end of August. Another 14 percent are “seriously considering” cancellation according to the survey. Netflix currently has 24.6 million subscribers.

This loss “could destroy the business,” said Janney Montgomery’s Tony Wible, whose bearish view has been vindicated by the stock’s recent plunge. “A loss of too many subscribers means they cannot pay their bills and the equity value in the company would be destroyed.”

Shares of Netflix are down 57 percent since hitting that all time on July 13. Selling accelerated this week after a confusing e-mail was sent personally to all users by Reed Hastings, the co-founder and CEO, announcing a name change of the DVD mail business to “Qwikster,” but no change to the pricing plans.

“I messed up,” began the Hastings e-mail. “It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes.”

Since the plan separation was announced over the summer, Hastings has estimated that three-fourths of new subscribers are choosing the margin-friendly unlimited streaming plan. But Magid’s survey of prospective subscribers shows that just 19 percent are choosing the $7.99 unlimited streaming plan.

“This has implications for Netflix’s margins and also re-emphasizes the importance of improving content selection among streaming plans,” writes Mike Vorhaus, president of Magid, in the slide presentation obtained by The firm has consulted the communications industry for 50 years and surveyed more than 1 million consumers for various customers this year alone.

It’s the content selection for streaming that has “the shorts circling,” according to one trader. While there was no announcement on Netflix’s web site, bears on the stock were passing around in jest an acquisition announcement that was in Home Media Magazine.

It said Netflix had signed a streaming deal with Osiris Entertainment, allowing instant viewing of such films and TV as “Alpha Bots Christmas,” “Santa and the Three Bears,” and “The Swiss Family Robinson.” later confirmed this deal with Osiris public relations.

“Our favorite consumer comment was ‘Boy, I can’t wait to start watching none of those movies,’” said Janney’s Wible.

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