Peter Kafka

Recent Posts by Peter Kafka

Netflix Says It’s Surprised Customers Haven’t Complained More

After Netflix announced a big price increase this month, angry customers bellowed into the Internet and promised that they’d quit the service. And Netflix is taking them seriously: It says reaction to the new prices will slow its subscriber growth next quarter, when the changes kick in.

That disclosure sent the company’s stock tumbling nearly 10 percent after the market closed. But Reed Hastings and company don’t seem to be sweating.

The real surprise, they say, is that Netflix customers aren’t more upset.

“Believe it or not, the noise level was actually less than we expected, given a 60 percent price increase for some subscribers,” Hastings said on yesterday’s earnings call, answering a question about the outpouring of outrage on the Web. “We knew what we were getting into, we tried to be as straightforward as we could, and that has worked out very well for us.”

What Hastings isn’t saying out loud, but is saying via the financial guidance the company is offering: Chill out. Relax. We know what we’re doing.

Netflix told Wall Street that it expects to see as much as $829 million in revenue next quarter. But as Citigroup’s Mark Mahaney notes, the relatively modest subscriber projections Netflix is offering for the end of Q3 — 25 million in the U.S., 15 million of them still using DVDs — puts the company on track to do a $1 billion quarter. Which is what it suggests it will do in Q4, for the first time in its history.

Essentially, Hastings is betting that subscriber growth returns to normal levels in Q4 — whoever is really dissatisfied with the pricing will have already bailed, while new customers won’t notice the change. And then he’ll see a real benefit from the price hike, which will affect the majority of his customers — DVD use has peaked, the company says, but it’s not going away overnight.

It seems to me that the real risk for Hastings isn’t consumer reaction to his price increase, which he can probably forecast fairly effectively. Netflix prides itself on the deep data insights it can mine from its customers.

What he can’t predict is the way the Hollywood studios will behave as he attempts to license new content for his streaming service and renegotiate his Starz deal, which expires early next year. If those deals aren’t successful and Hastings can’t grow his catalog of movies and TV shows, then the price he’s offering won’t matter that much.

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There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google