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Report: Netflix to Lose More Than 2M Subs

26 Jul, 2011 By: Erik Gruenwedel

Fallout from the pending 60% price increase will see upwards of 15% combined disc/streaming subscribers cancel service

A day after producing solid quarterly results, including a membership base above 25 million, Netflix is projected to shed nearly 2.5 million subs in the third quarter due to a pending price increase for combined streaming/disc rentals, according to a new report.

The cloudy future for sub growth contributed to Netflix shares falling for a second consecutive day July 26 before increasing slightly in after-hours trading.

Indeed, after Los Gatos, Calif.-based Netflix announced the price increase earlier this month, 70% of its dual streaming/disc rental subscribers — which represents the majority of its membership — cited their displeasure, according to a telephone poll conducted by Frisco, Texas-based research firm The Diffusion Group (TDG).

The study — based on a group of 500 Netflix subs — found that from 12% to 15% of streaming/disc subscribers would cancel service in the next six months. Netflix, in a July 25 letter to shareholders, postulated as much saying its expects “some subscribers” to cancel in the third quarter (which ends Sept. 30) before bouncing back in Q4.

TDG found that 44% of dual-service subs are likely to cancel DVD-by-mail but keep their streaming service. Access to a limited but growing streaming library on all their connected devices is apparently more important than having access to a larger, more current library of physical discs.

In addition 34% of dual-service subscribers are likely to cancel their streaming service but keep DVD-by-mail.

“This is a significant finding,” said Michael Greeson, TDG founding partner. “It suggests that, at least among dual-service subscribers, preferences have tipped to favor video streaming over physical discs. This was a central assumption behind Netflix’s risky decision to change prices at this time in the game.”

Greeson said the subscriber departures could be short-lived when compared with alternative streaming channels such as Amazon Prime and Google, which offer even less content.

“Once they see what alternatives exist in the marketplace, Netflix won’t look so bad,” he said.


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