Netflix: Price Hike Backlash Won't Last

Netflix: Price Hike Backlash Won't Last
Sorry Netflix haters, your outrage at price hikes for the DVD and streaming video service was actually quieter than the company expected.

During Netflix's latest earnings call, CEO Reed Hastings said the company knew what it was getting into by raising prices as much as 60 percent, and he expressed satisfaction with the way things turned out.

"We tried to be as straightforward as we could, and that has worked out very well for us," Hastings said. "In terms of the customer support line, it was a very short amount of time that it exceeded our capacity there. And now, our service levels have returned to our normal great service levels."

Background

Two weeks ago, Netflix announced that it would stop bundling DVD rentals and streaming video into a single plan that started at $10 per month. Instead, the services would be sold separately, starting at $8 per month for DVDs and $8 per month for streaming. This resulted in a $6 per month price increase for subscribers who wanted both. The changes take effect immediately for new subscribers and on September 1 for existing users.

While the price hike caused outrage from users on Facebook and on Netflix's own blog, and temporarily clogged Netflix's customer support lines, the company seemed unsurprised and unconcerned. Netflix told investors to expect lower growth this quarter due to a higher level of cancellations, but ultimately expects growth to rebound in the quarter that follows, with the added benefit of higher subscription prices.

Whether that actually happens remains to be seen, but for many customers, leaving Netflix will be difficult because there's no competitor that offers a comparable service. The best Netflix quitters can do is cobble together services like Hulu Plus, Redbox, Blockbuster and Amazon. At $16 per month, there simply is no other equal combination of unlimited DVDs and streaming. [Read: Netflix Alternatives]

The bigger risk for Netflix is the loss of customer goodwill that the price hike has caused, even among people who are keeping their subscriptions. But if Netflix can use its newfound revenue to beef up its streaming catalog, as Hastings promised in the company's latest earnings call, those customers might eventually learn to forgive.

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