Friday, October 28, 2011

Netflix: Flushed Down The Toilet

Most everyone is familiar with the popular company called Netflix. Some of us even use Netflix to get DVD's in the mail, watch movies online, or how most of my friends use it, through XBOX 360 to watch movies and TV shows. Netflix became a booming company with total revenue toping out at $822 million at the end of the second quarter. However, Netflix has entered itself into an enormous collapse, some what like the collapse the Boston Red Socks had at the end of this years MLB regular season. Because of all excess demand, Netflix believed its price was below equilibrium, so they raised the price of streaming movies online and receiving DVDs in the mail in order to maximize profit. Streaming and receiving movies and TV shows by mail were previously offered together for $8.99, but with the current price increase, Netflix split streaming and receiving by mail into two individual services both costing $7.99. This price increases has destroyed Netflix, causing the demand to drop immensely. In the third quarter, Netflix lost 800,000 subscribers!!! As well as stocks plunging 35% (numbers which are predicted to worsen a lot more). Now, their is no excess demand, but now excess supply, showing that Netflix moved its price to far above equilibrium. I am a current Netflix subcriber and when they announced their price change, I cancelled my mail subscription, but not my streaming subscription. However, most Netflix customers do not have any inelastic demand, and left the company all together. If Netflix wants to stay in business, they need to make a change, especially in price.

Link: http://money.cnn.com/2011/10/25/technology/netflix_stock/index.htm

3 comments:

Kamil H. said...

Netflix was not very smart by raising their price by around $8 at all, or splitting their company into two, streaming and mailing DVD's. If they wanted to raise their price they should have done it very slowly, because when they raised the price that high the demand for streaming movies and for DVD's went down.

Anonymous said...

Netflix increasing their prices by nearly 100% at once is completely ridiculous. My family chose to buy Netflix because in comparison to ordering one or two movies on the TV and going to Blockbuster once or twice in a month, it was a steal. Now however, we are debating going back to “pay as you go” method of ordering movies through the TV, as it seems to be the better price. Netflix should have known better than to spike their prices without first an improvement in customer expectations of what will become available.
Morgan K

Eugene L III said...

i agree with kamil. If netflix would have started incresing their prices slowly instead of splitting everything they would still have most of their customers today. By spilting them the customers feel like they are no longer getting a good deal.