UPDATE: 12:00 PM: Rival Blockbuster has just pounced on Netflix’s public relations problem, announcing that it is launching a nationwide promotion in which existing Netflix customers who switch to one of Blockbuster’s two Total Access plans (1 disc at a time for $9.99 a month or 2 discs at a time for $14.99 a month) will receive a 30-day free trial. The company, which recently was purchased at a bankruptcy auction by Dish Network, said that besides a lower price it offers benefits Netflix doesn’t: availability of many new releases 28 days before Netflix, unlimited in-store exchanges, video game rentals and no extra charge for Blu-ray movies. “Blockbuster quickly responded to the cries of Netflix customers,” Blockbuster president Michael Kelly said in the release announcing the promotion. “Blockbuster Total Access is Netflix ‘without the wait.’ The combination of DVDs by mail and unlimited in-store exchanges provides more than 100 million people living near Blockbuster stores immediate convenience and unparalleled choice.” The offer is good through Sept. 15; Netflix customers can go to Blockbuster’s website to enroll or show a red Netflix envelope at a Blockbuster store.
PREVIOUS, 10:11 AM: It’s shocking to see how badly Netflix appears to have underestimated the general confusion and anger that has followed the announcement on Tuesday that it’s raising by 60% the price of its combo DVD-by-mail rental and video-streaming service. More than 5,000 mostly furious customers responded to the Netflix blog post unveiling what BTIG analyst Richard Greenfield calls “perhaps the boldest single move in (Netflix) history.” And Netflix shares are down about 3.6% in midday trading as Wall Street wonders whether the company raised prices enough to cover revenue it will lose from people who cancel the service. Lazard Capital Markets’ Barton Crockett says that “few will pay the jarringly higher price” for the streaming and DVD combo plan and “most will move to (Netflix’s) cheaper streaming-only” service. Netflix could lose some of its most profitable customers — the ones who pay the monthly fee for DVD rentals but don’t bother to order many discs. Merriman Capital’s Eric Wold says he “would not be surprised” if many of those subscribers bailed on Netflix to rent DVDs from Redbox’s $1-a-night kiosks. But Goldman Sachs’ Ingrid Chung says Netflix will probably come out ahead: The company makes a much higher profit from streaming than it does from DVD rental, and “a very high number of subs would have to churn off to offset the pricing increase.”
Whatever the case, the Street wants to hear Netflix answer tough questions about its strategy on July 25 when executives discuss quarterly earnings. It would be a big change if Netflix’s price hike signals that it’s giving up its effort to amass as many subscribers as possible — including many cable customers who might cut the cord in favor of a cheaper video service. Netflix’s subscriber base grew 63%, to 22.8 million, in the year that ended in March.
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