Home / Free Market / Netflix: A Study in Arrogance . . . and Rotten Forecasting
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Netflix: A Study in Arrogance . . . and Rotten Forecasting

Written by Gary North on November 23, 2011

The CEO of Netflix thought he could stick it to subscribers. I was one of them. The firm raised prices. This will go down in history as a classic bonehead move. Netflix will be a poster child of arrogance.

Netflix market value has plunged by $12 billion, or 75 percent, since its stock peaked at nearly $305 a share in mid-July. That’s right around the time that the company announced plans to raise prices as much as 60 percent for U.S. subscribers to rent DVDs by mail and to stream video on devices connected to the Internet.

The higher prices infuriated so many customers that Netflix lost 800,000 subscribers during the July-September period — by far the most the company has suffered since introducing its DVD-by-mail rental service in 1999.

Yesterday, the stock was at $70.

The company is trying to raise $400 million through debt and stock sales.

The saps who bought this turkey in July will never get their money back by holding onto these shares. Amazon is now moving into Netflix’s turf. For $79 a year, Amazon Prime lets you download movies for free. You also get free shipping on the Amazon products you buy. You also can download a digital “library” book a month for free. Match this, Netflix! Not likely. Not ever.

The free market does not reward those who think they have a captive audience. It hammers them. Netflix is one of the best examples in recent history. “We’ve got ’em. Let’s squeeze ’em.” Sorry, Charlie. It doesn’t work that way.

I still have a streaming video subscription at Netflix, but not for much longer. I have signed up for Amazon Prime.

Netflix  is in attrition mode. The bonehead move exposed the company as a high-tech high-flyer  without a viable marketing plan. It all looked so clear in July — to management and to investors. It was dot-com 2000 all over again. It was AOL/Time-Warner. It was dumb.

Continue Reading on www.latimes.com

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53 thoughts on “Netflix: A Study in Arrogance . . . and Rotten Forecasting

  1. Netflix charged for both (I use only "by mail"). By phone I was assured "no charge" for the following month. WRONG! My statement now shows additional fee. I will cancel next month if they don't respond to my email. Thank you.

  2. I only receive movies by mail. My price went down and I'm quite happy. As for sterile "digital" books, you can have 'em. I cannot understand those that can give up the cozy feel and smell of the real thing.

  3. Gretagarbo says:

    I have issues with Netflix – mainly about their website and changes that were made. There was absolutely no way to communicate with Netflix, other than a standard drop menu that didn't apply to the gazillion other issues a person may want to address.

    I have no issues about Netflix raising their price to stream EXCEPT that they did this when the selections in streaming were still poor. We got three DVD's at a time through the mail and anyone on that level had a slight raise in price. The people who got one movie at a time (the lowest level) had the highest jump in price. They were paying a very low price for their level, so I think this level should have had a raise for streaming. I'm not running off to other providers right now because Netflix has such an extensive movie library (for DVD's and hopefully eventually for streaming), that I doubt I would find such a selection elsewhere. We watch foreign flicks, British TV and many other movies that aren't mainstream Hollywood. Yes, Netflix was arrogant and didn't want to hear from their customers. They have many irritating non-user friendly things on their website and people were posting complaints on movie reviews because there was no other way to get through. Businesses can't run this way. As far as the website (and other companies do the same), I think they let the techies "play" to much thinking that a new aspect they insert is cool, when it is just not helpful to the customer. (like when you look at a movie, they give you the stars for what the computer thinks you would rate it, instead of the stars for the actual average of how the customers rated it. The computer is rarely right, too!

  4. I am one of the many that saw through this deal in the beginning. I had been with them since their inception many years back. My Grand-daughter was a devotee to watching her movies on her laptop. She is only 8 years old but she understood real well when I explained what they were doing. Now I will be with another service where the price gouging should not occur. If it does, I will leave them also.

    Competition drives the engines of ingenuity in a Capitalist society. Government control runs everything in a Socialist/Marxist society.

  5. Ummhuh, I'll bet the stockholders who supported this bunch of clowns will again want to do biz w/the idiots who planned this. Does anyone know the names of the braintrust at Netflix who were responsible? Oh, wait. I see on your blog, who was involved. OK, say no more

  6. John B Quinlan says:

    I have been a Netflix member for 5 years. I think they are great. It is one of the best outfits I have ever done business with. TV stinks so watching old movies is my major entertainment.

    if ever there is a problem they take care of it promptly.

  7. John Wright says:

    $70 a share for netflix?!?!?!?! Dumb is investing at $300 a share in a company that would be hard to imagine at $70. My hard earned dollars in would never be found invested in a company whose foundation is the whimsical entertainment choices of the richest population on the planet. I subscribed to netflix at $8 a month because it was an unbelievable value. At $16/mo. it is still an unbelievable value. But what I find even more unbelievable is that anyone would think the company is worth $70 a share much less $300 a share. The share price drop and the subscription price increase were both necessary and unavoidable.

  8. I bet this bozo gets a multi-million dollar bonus and severance package when he is forced out/leaves. None of which is deserved. This is the problem have with corporations and their leadership. These guys get these mega bonuses and severance packages even when it isn't deserved. Run the company into the ground, get a big bonus

  9. I am proud to say I am an EX patron of Netflix. Even before they raised their prices I knew it was time to ditch this service. Poor movie choices…nothing new ever. The gaul of this company to choose to gouge their clientele when their services are sub-standard to say the least.

  10. I have been a Netflix customer for several years. My grandboys watch on the laptop and through the Wii. I have had no problem with this company and the price is great. Wait to see the bottom line for the other companies now trying this kind of service.

  11. 82nd Airborne Dad says:

    I think it is great, I just signed up, and well when I return my movie today, I will be telling Net-fux where they can stick it

  12. don't know much about movie rentals etc… netflex or any of todays instant entertainment. don't support the left coast and the movie makers/stars period. One thing I do know a bit about is the fact that these multi-billion $ companies always want more. Comcast is having the same pbm, too big to be a good service oriented company. Prices very high and the people are disgusted and leaving by the droves…hummm the CEO's want big bonus/paychecks and favor from the regulators on creating monopolies. we get stuck with paying the bill, Americans are finally saying (perhaps out of necessity) enough already. We don't like paying outrageous prices for fair service.

  13. Arrogance and GREED, The two hammers that usually kill a business.

  14. I was given a gift certificate from my daughter & have been VERY satisfied w/ my service! My price has not been raised! I despise watching or reading any thing on line! Who in blazes wants to sit upright in a chair & read a book or watch a movie? Talk about being uncomfortable,………sheeesh!


  15. Why was my e-mail not published?

  16. Ironic that Netflix stole the business from Blockbuster when Blockbuster started abusing their customers and they are now doing somewhat the same things. I will stay with Netflix for now while Amazon gets the bugs out and I will also wait to see when Apple goes to a similar system rather than the individual itunes purchases (which has to be inevitable).

  17. Richard Davis says:

    Sounds like the people in charge here are preparing to take a major appointment in washington,Dc. As i told my local supervisors, gaul, greed and fraud dont start at the doors of the Capital.

  18. guest on this planet says:

    Is this CEO still there > He should have been fired and allowed to either run for Congress or better yet president . HE HAS THE QUALIFICATIONS TO BE A POLITICIAN SINCE HE IS AN IDIOT

  19. I think this article is a bit harsh. I'm not saying that Netflix did not make a huge mistake in both the percentage of the price increase and the manner in which the company handled it, however the service is STILL a bargain at either $7.99 unlimited streaming or $7.99 unlimited DVD rentals. Try getting either one of those (comparable) services elsewhere at the same price, it can't be done in my opinion. Amazon has a fraction of the selection as Netflix does as far as streaming video and that service is still $79 a year, not much more than the $7.99/month that Netflix charges. I love Amazon too and think the $79 a year is a great deal for the videos, free shipping AND free Kindle book rentals, I just don't think it's necessarily a completely viable alternative to Netflix, personally if I had extra money I would have both services just for the free Kindle book rentals.

    The bottom line, to me, is that people complain about the spotty selection of titles available for instant streaming on Netflix – obviously it costs a lot of money to acquire the legal rights to have more and more titles available this way and I can see that Netflix had to do some kind of a price increase in order to bring in the additional revenue it required to buy the rights to more and more programming. Perhaps a lot of the anger directed at Netflix ought to be directed at the movie/TV studios that are gouging the consumer for the ability to access their content online.

  20. I was with Netflix for 7 years and had very little to complain about until about 2 years ago when the wait time for just released DVD's started to get longer and longer.The streaming was great,if you like old movies and old TV series they have a good selection.Then this year every movie at the top(just released DVD's) of my Q would say very long wait and stay that way for months.Then the price increase came That convinced me it was time to go.

    They may recover in time,but I hope they learned a lessson.You can't treat customers that way and expect them to accept it. Losing 800,000 of them had to be a shock to Netflix management.

    Their stock is in freefall.

    I read a news story where they tried to say they expected to lose some customers and yada,yada,yada.Sounded hollow.

  21. The penalty for breaking a law is sometimes community service. For those who have a job, have always paid appropriate taxes for a legal immigrant and have American spouses or American children over 5 years old, maybe two years of community service, 20 hours/week could be the consequence.

    I could live with that – maybe – what I cannot live with is treating the law casually, as though it does not have to be obeyed. I may like to do something, but if it is against the law, I am not going to do it. Why should I be restricted for a small thing, but an alien not be restricted for entering into my house [and/or the USA] because he wanted to enter?

    There MUST be CONSEQUENCES to ILLEGAL actions, or justice in our society is a joke – a very, very sad joke.

  22. This alien comment was on the wrong page.

  23. sherry files says:

    television has gotten so bad that we decided to try netflix. The price was ok so we went to 4 at a time. When streaming came along , we decided to try that, too. That did not work out well as we have the cheapest Hughes Net at only 1 MGB. They started claiming that they were not getting the returned dvds as well as the big price jump that we decided to dump netflix back in August. The other day, we saw the ad on Yahoo for a free month trial. My husband decided to go ahead and give it another try. After signing up for the "free" month, they notified us we were not eligible for that free month because it had not been a year we were off netflix. They got us for streaming (which doesn't load or stream) and for the 1 at a time which is a waste of time. We will be droping netflix now that someone just bloged on this site that Amazon is in this market. We will be changing shortly!

  24. I cancelled my Netflix subscription and will never go back.

  25. I could understand if a company wanted to make a modest price increase once in a while, or maybe a large increase only to the new customers while showing loyalty to your existing customers. But to stick it to all of them with a huge increase like that all at once was like a knife in the back. I canceled my DVD service as soon as they announced it and just like the author, I will cancel the streaming as soon as I get my Kindle Fire and sign up for the Amazon Prime service. I'm actually running out of good movies to watch on Netflix now anyway. They won't last much longer. The best thing they could do is issue another apology in the way of a return to the original prices and guaranty it won't change for two years

  26. IGotAComment says:

    I'm an exsubscriber also.

    When my rates went from $16 to $24 a month, I quit.

    This is exactly what should happen to all the "too big to fail" corporations. Just as Amazon.com is stepping to fill the void left by Netflix. If GM had gone under, someone would have bought them out and also Ford (who didn't get any funds) would have still been making vehicles, selling more vehicles and hired some of the laid off. Today, the expectation among the big guys is, 'they'll save us.'

    Another over priced dot.com stock bites the dust.

  27. After working in marketing for 35 years, I have seen many stupid decisions such as this one made by executives. Its the old classic. Capture the customer by "low balling", then you stick it to them. This tactic never works in private business, but will other executives learn from this mistake by Netflix. NO. They never do. Once you get a customer, all you have to do to keep them is by treating them fairly and giving good service. In the case of Netflix, "greed" took the place of COMMON SENSE. Good luck in trying to get back a 75% loss.

  28. "The free market does not reward those who think they have a captive audience. It hammers them."….Hmmm…Guess this administration could learn a thing or two about the 'Free Market' and how it handles corruption (too bad we don't have term limits in our courts or in Congress!)

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