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Netflix's Fall From Grace

Netflix's Fall From Grace
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After a series of missteps, Netflix, Inc. (NFLX: Quote) has earned the wrath of its customers as well as its shareholders.

The Los Gatos, California-based online and mail-order video service angered its customers in July when it decided to raise prices 60% and threaten to split its convenient DVD and streaming media rental services into two.

The company was charging $9.99 per month together for its unlimited streaming plans and one DVD at a time, until last summer. However, July's new plans brought customer options down to unlimited streaming and no DVDs for $7.99 per month and unlimited DVDs, one out at-a-time and no streaming, for $7.99 per month. he company then killed the DVD-only plan.

The consequences thereof were disastrous. Netflix lost about 810,000 subscribers in the third quarter. Investors followed suit. The company's shares, which hit a 52-week high of $304.79 on July 13, 2011, traded as low as $62.37 on November 30, 2011.

According to the American Consumer Satisfaction Index, a national economic indicator of customer evaluations of the quality of products and services available to household consumers in the United States, Netflix's customer satisfaction witnessed a sharp drop in the fourth quarter of 2011. On a 100-point scale, while customer satisfaction with Netflix plummeted 14% to 74, the lowest score of any e-commerce website in the index.

However, Netflix said in its fourth quarter earnings report last month that it added over 600,000 unique domestic members in the fourth quarter, ending the quarter with 24.4 million. "As expected, DVD members declined this quarter to 11.2 million due to the continued impact of the price changes, as hybrid members continued to predominantly choose a streaming-only plan over a higher priced hybrid plan," Chief Executive Reed Hastings said at that time.

The company went on a damage control mode last week, encouraging people to sign up for DVD-only plans on its website. On the company's official blog post on February 16, Netflix Director of DVD Engineering Santosh Hegde said, "Starting today, our DVD and Blu-Ray loving audience can now easily sign up for a DVD only plan. Starting at just $7.99/month, you can enjoy around 100,000 titles on DVD. We are also offering a 1 month free trial for eligible customers."

Although it is too early to gauge customers' reaction to the news, many users believe that it was just a mere manipulation of the available plans. With the price tag remaining the same, only time will tell how many customers sign up for the DVD only plan.

Apart from its own mess up, Netflix has to clear another big hurdle - the growing competition in the industry. Amazon.com, Inc. (AMZN) has been beefing up its own web-streaming service. Earlier this month, Verizon Communications, Inc. (VZ) and Coinstar Inc.'s (CSTR) announced the formation of a joint venture that will offer all of the convenience, simplicity and value of Redbox new release DVD and Blu-ray Disc rentals combined with a new content-rich video on-demand streaming and download service from Verizon. On Tuesday, cable operator Comcast Corp. (CMCSA) announced the launch of a new subscription video service called Xfinity Streampix, which will cost $4.99 per month, below Netflix's current streaming service of $7.99 per month.

Netflix shars are currently trading at $117.91, down $3.94 or 3.23%. The stock is up about 75% this year after losing 61% in 2011.

Will Netflix regain its lost glory - or is this just the beginning of the end? Let's wait and watch.

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by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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