Netflix And No Chill: Company Sees Worst Quarter In Three Years After Price Hike

Other than the odd episode of Frasier, which I use as a televisual narcotic to lull my brain to sleep, I haven’t opened Netflix in months. Why would I? Especially when there’s Hulu, Amazon, HBO Now, and Apple TV. I have them all and I use them all, rotating based on whichever service has the content I actually want to watch. But despite killing video rental as both a concept and business in its halcyon days, Netflix has been so barren between binge-watching sessions of shows like Jessica Jones or Master of None that even the Crane brothers’ soothing banter may not be able to keep me from leaving.

It’s looking like I’m not alone. After a disastrous earnings report earlier this week, a cloud has begun to gather over the ubiquitous service. The company just closed its worst quarter in three years, missing its targeted boost in U.S. subscribers (500,000) by 340,000. Meanwhile, their stock is down 13 percent. The company blames a recent price hike that affected veteran users, who’d been locked in at a rate of $8.99 per month after the service raised its price to $9.99 last October; now “un-grandfathered,” Netflix would have us believe they’d rather cancel than pony up an extra $12 a year.

“Whatever the price is for something, people don’t like it to go up,” said the company’s Chief Executive Reed Hastings on a call with analysts reported by Bloomberg earlier this week. Michael Goodman, the director of digital media strategies at Strategy Analytics, disagrees. “I don’t buy the price thing,” he said. “At $9.99, it’s still a very attractive offer. I would argue that, when looking at the services, content trumps price. We’re not talking that other services are thirty dollars more. We’re talking a few dollars between different services, and we’re talking, at least on the movie side, a lot of other services that have more robust offerings.”

Back in May, Goodman’s organization released a study about the video streaming marketplace, finding that nearly 60 percent of broadband households in the U.S. already have a subscription to at least one streaming service. Netflix, with a 53 percent share, is far and away the leader among subscribers. But nearly 40 percent of those households subscribe to at least two services. There are a lot of users like me out there who are drowning in options, and most of us who want to stream video already are.

“There’s a cap on how many people can subscribe to SVODs (streaming video on demand services) in the US,” said Goodman. “The way we look at it is there’s 90 million or so broadband households. We don’t think every household is going to subscribe to an SVOD service––just as not everyone subscribes to television or not even everyone has a television.”

Netflix’s estimate is pretty similar to Goodman’s: “[There is] no change to our view of the ultimate size of our U.S. membership, which we believe can ultimately reach 60-90 million homes,” reads the Netflix stance on saturation to their investors. Goodman estimates that there are only about 15 percent of broadband users left for Netflix to woo.

Subscribers aren’t going back to cable, either. Roughly 24 percent of Americans do not pay for cable or satellite television, and fewer than 17 percent of cord-cutters expressed remorse at their decision to ditch tradition in a recent study. The company taught us to watch whatever we wanted, whenever we wanted. Now, a lot of us don’t feel like watching Netflix.

Or, if we do, we might be doing it illegally—even if it puts users at risk for hacking. A report last year from globalwebindex found that about two-thirds of Netflix subscribers share their account information. For many users, there’s simply no reason to subscribe when you can surreptitiously borrow a friend or family member’s password––at least until they decide to cancel their subscription.

The battle will be won by content, not price. And Netflix seems to realize that, even while becoming one of the largest content producers in the world, movies and licensed entertainment need better representation if they want to remain on top. The company just forged new licensing deals with Disney, CBS, Warner Bros, and the CW network, ensuring the sort of broadly-appealing pipeline which drove subscribers to sign-up in droves over the last half-decade. That’s a start.

Some subscribers who’ve recently quit might be like Leon Hitchens. “I honestly left the service right around the time of the price hike,” Hitchens told me. “I left because of the hike and lack of shows I watched there at the moment. I have Hulu and Amazon Prime, so I thought I would be able to do without Netflix.” He only lasted a month, though. The lure of the service’s original series’ (namely the return of Orange is the New Black) was too strong to keep Hitchens away.

From what I recall, Master Of None was perfectly captivating for five hours over two days. But only a familiar, well-rounded mix of shows and movies will give Netflix subscribers like me incentive to come back, night after night, looking for the next thing to watch. For now, when all else fails, at least there’s Frasier, my trusty Ambien substitute—I suppose it’s worth the $9.99 per month on its own.