Competitors Set to Come Streaming After Netflix Falters
Netflix (NFLX) decided to raise prices in a near-recession and within three months a million subscribers decided to go elsewhere. No surprise. Next no surprise: Here comes some real competition.
Earlier this summer Netflix announced it would stop letting folks pay $9.99 per-month for DVD-rental and movie-streaming. Instead it would be charging $7.99 a month for each service. Today the company announced that 4 percent of its subscribers had left since June and the market responded by knocking 16 percent off Netflix's share price. Netflix was apparently surprised by the exodus, as it had to restate its third quarter guidance.
The higher prices will soon get customers access to less content than before. The company failed to come to terms with Starz, which has rights to Sony (SNE) and Walt Disney (DIS) movies. Those movies will vanish from Netflix' electronic shelves at the end of February.
The good news for Netflix is that the customers it lost were the costing the most money. Nearly 80 percent of those who didn't renew were people paying only to get DVDs through mail. About half of company's 24 million (remaining) subscribers are DVD-only and the company is clearly pushing as hard as it can to get everyone to stream movies. The cost of all those little red envelopes does add up.
Netflix has created a big opening for its previously minimal competition. Dish Network (DISH) and Amazon (AMZN) both have streaming video services that could profit from this. But the real risk comes from Hulu, now up for sale and targeted by Google (GOOG) and its deep pockets. Whoever gets Starz and all those Disney titles is going to have a big advantage.
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