Could This Have Been Avoided?
Building a rabid fan base can be wonderful, but can also have it’s down side as Netflix is learning. On the heels of a 60% rate increase this summer, Netflix has seen mass cancellations and a plunge in their stock prices.
Thousands of the nearly 1.9 million Facebook fans took to the platform to berate the company and it’s CEO Reed Hastings.
Hastings’ attempt at an apology was meant to slow the mass exodus of subscribers (600,000 so far). Instead, it seemed to enrage their customers more. One man posted the apology came across as “sorry…but not really”.
Perhaps Mr. Hastings would have been better served to explain the reasons for the new model and the separation of the streaming from the rental business. Qwikster is the name of the new rental business and the streaming will retain the name Netflix.
Netflix’s spiking subscription costs are the problem. The money it pays to license the content that it streams to consumers and mail the DVDs has risen 53% from $525 million to $805 million the first six months of 2011.
The amount that Netflix owes to studios for licensing streaming content has seen a huge increase. These have risen 218% from $137 million at the end of 2010 to $435 million at the end of June 2011.
Adding more to their woes is having no agreement with Starz past February of 2012. Starz controls pay-cable rights to movies from Walt Disney Studios and Sony Pictures. It signed its original contract with Netflix in 2008, when online video was watched by only a small number of young people.
In 2008, the estimated $30 million per year the cable network received was seen as new revenue that would have little impact on its traditional television business.
Now the same agreement is estimated to be worth over $300 million. The decision came after executives at Starz decided they would lose even more money by giving consumers a reason to subscribe to Netflix, instead of the cable channel.
Communication is the key to avoiding problems in life and online. Netflix once one of the hottest success stories in the industry is now in big trouble.
How do you think they should have handled the rate increase and the response online? What lessons can be learned from this fiasco? Post your comments below.