Netflix Not Surprised by Backlash Over Price Hike

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Netflix Not Surprised by Backlash Over Price Hike
Netflix knew that price hikes would lead to outrage and cancellations, and the company is showing no signs of backing down to placate critics.

Netflix spokesman Steve Swasey told CNet that the company added extra employees to its customer service department and prepared them to handle angry calls.

This week, the company separated its DVD-by-mail and streaming services, charging a minimum $8 per month for each instead of $10 per month for both. The price change is effective now for new subscribers and Sept. 1 for existing customers.

"We tested, we researched, we analyzed," Swasey said. "We knew what the reaction would be. We are not surprised."

Even so, representatives struggled to keep up with incoming calls. BTIG Research analyst Richard Greenfield reported wait times of 9 to 15 minutes after placing 35 calls over a two-hour period, according to CNet. When I tried calling Netflix's customer service line Wednesday, I got disconnected.

Greenfield said Netflix was not offering any deals to people who threatened to cancel. "This would appear to illustrate that Netflix is simply not concerned with the prospect of losing customers," he observed. When CNet's Greg Sandoval asked Swasey whether Netflix would backpedal on pricing, he simply replied: "These are our prices."

Netflix Not Surprised by Backlash Over Price Hike
So why did Netflix move to a pricing plan that it knew would tick off customers? Simple, says Peter Kafka at All Things Digital: Netflix wants users to cancel the DVD side of their plans and switch to streaming-only for $8 per month. By pushing people away from DVDs, Netflix can accelerate the process of becoming a streaming-only company.

Of course, Netflix isn't saying that publicly. There's still a huge demand for DVDs, Netflix's Jessie Becker, another company official, explained on Netflix's blog, and offering them as a $2 add-on " neither makes great financial sense nor satisfies people who just want DVDs." The subtext may be that Netflix wants more people to stream, but it doesn't sound like the death of physical media is imminent.

This could be the very argument that Netflix takes to movie studios as it tries to negotiate favorable terms for streaming content. As Wedbush Morgan analyst Michael Pachter noted, isolating DVDs allows Netflix to argue that a lesser number of subscribers are streaming. But that argument falls apart as more people ditch physical media, which is reportedly what Netflix wants in the long-run.

Whatever Netflix's motive, it's not going to change just because of angry blog posts and Facebook comments. That much was expected.

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This story, "Netflix Not Surprised by Backlash Over Price Hike" was originally published by PCWorld.

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