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Netflix: The Saga of a Company that Needs Your Love

Oct 17, 2011 1:49 PM, by Jason Bovberg

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Last week, I came across a typically perfect satirical news story from The Onion. The title was "Netflix Switches Over To Convenient New Physical Locations." Compared with Netflix's business decisions of the past three months, the suggestion that the company begin opening brick-and-mortar locations seems pretty market-savvy. It’s been nothing short of astounding to watch this once-strong—seemingly invincible—company implode so thoroughly.

I was a late Netflix subscriber, having joined in March 2011, finally, at the insistence of friends and family. I quickly came to see the value of the service, even though I had been a long-time customer of a favorite local video shop. But even as I held firm to my twice-weekly drives to my local mom-n-pop shop, I could feel the winds of change buffeting me, and when that store quietly shut down, I gave in and tried Netflix. I haven't looked back since. The company immediately made an impact in my home theater, saving me gas money and introducing a new convenience to my rental habits. I'm sure most of you have similar Netflix tales of convenience and comfort. Ahhh, Netflix.

But then July happened.

From the perspective of the customer, Netflix seemed to endure a three-month self-destruction the likes of which we rarely see. Just as customers were starting to get curious why Netflix was scaling back on some of its on-demand content, the company made the startling announcement that it would be dramatically increasing its prices. The streaming-only service would remain $7.99, but a now-separate DVD-only plan would also cost $7.99, which meant that customers who wanted both services would be seeing a much larger Netflix bill each month: $15.98 per month for two separate services, and an extra couple bucks for Blu-ray.

Complaints were vociferous. Users were livid, feeling personally affronted by the changes. The national conversation became, "Which Netflix service(s) are YOU dropping?" Netflix subscribers had traditionally been a loyal, almost Mac-like audience, but this one announcement changed the game. Since July, Netflix has lost over 60 percent of its value. Which is somehow appropriate, given that the spark that began Netflix's precipitous decline was an announcement that it would be increasing its prices by just that—60 percent—for subscribers of both its disc-rental and streaming services.

All because of a bungled announcement!

Netflix, after all, has been and remains a great company. For years, it has been a model business, providing exceptional service and incredibly low prices. Its highly regarded DVD-by-mail service was a pioneer in the industry, as was its wow-factor streaming service, which—thanks for the detail-oriented tech team at Netflix—stayed ahead of the pack. And the company was paying its online-content distributors incredibly low fees while delivering this world-class on-demand service.

Customers didn't realize it, but they were getting an even better deal than they realized. For a paltry sum, the average Netflix subscriber could watch high-value content on any device in their home—streaming or physical media—at all hours of the day. A constant stream of TV series and high-def movies and standup routines and concerts and documentaries, blasting at you from all directions, all for less than 10 bucks a month. It was only natural that Netflix subscriptions exploded between 2008 and 2010 by more than 50 percent. Shares of Netflix stock soared from $19 in 2008 to a whopping $295 at the start of 2011.

Of course, that wonderful dream couldn’t last, but it’s sort of amazing how quickly the dream became a nightmare.

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