Netflix’s trademark red logo may soon apply to its quarterly earnings.
The video giant made headlines recently with its proposal to split its service into two branches: the previously-unified Netflix would become both Netflix, which would stream videos online, and Qwikster, which would handle the video mailing service. The price would go up from a $9.99 rate for both services to $7.99 per service. Netflix, though, quickly backtracked once it heard that consumers were not receptive to its plan. The plan was widely disparaged, in part, because the proposed split of services would require two completely separate accounts: two usernames, two passwords, and two separate bills.
With the split of services not taking place, the price hike would still remain the same, and it would remain about $16 dollars per month, up from the original $10, to have both services. While that may be old news, what isn’t is the earnings that have been posted by Netflix: their shares fell an extra 26% from their already-dramatic 61% drop from their all-time high. A company that was worth over $16 billion is now worth just $4.6 billion. And the bad news doesn’t stop there: over 800,000 subscribers have dropped the service leaving Netflix with about 23.8 million U.S. members.
But why did the company post such excessive subscription losses? In a letter to its shareholders, Netflix said, “We compounded the problem with our lack of explanation about the rising cost of the expansion of streaming content, and steady DVD costs, so that absent that explanation, many perceived us as greedy.” The company defended its move to the higher price range, saying it is still appropriate for their long-term aims. Having launched a campaign into Ireland and Great Britain, Netflix was not expecting to post gains for the next few quarters. The problems Netflix faces are certainly disappointing for a company that at one time “could do little wrong in the eyes of consumers and investors” but with the expansion into the UK and with the PR storm that was the Qwikster “scandal” (hopefully) about to blow over, the company can by no means be considered down and out. That said, seeing their shares fall a whopping 87% from their all-time high certainly cannot be good for the company. But, like CEO Reed Hastings said, the only option now is “to own up to those mistakes and to move forward.”
Despite its recent missteps, Netflix still has an opportunity to be a major player in the high-tech marketplace. But if the company does not significantly address its business model and subscription structure soon, Netflix could become another tech disruptor filled with potential but lacking the execution for sustainability and growth.
About Jack Hopper
Jack Hopper covers finance and politics for NBR. Besides NBR, he is also Internal Affairs Chair at Ayers CCI.
Nice report, Jack. We are enjoying your writing!