Netflix Expects Consumer Backlash Over Price Hike

Netflix's high-flying stock sold off sharply in Monday's after-hours trading after the video rental company announced second-quarter earnings that disappointed Wall Street. But its weak guidance going forward may have also spooked investors.

For the current quarter, Netflix said it expects revenue to be from $799 million to $825 million, which is less than previous projections. The reason? Angry consumers.

You'll recall that just a couple of weeks ago, Netflix changed its price structure. The company eliminated its popular $9.99 per month plan that included both streaming video and DVD rentals. That plan goes to $15.98 on Sept. 1.

Angry customers

Netflix immediately took heat from customers on consumer review  and social networking sites. Complaining consumers viewed it as a huge price increase. There is still a plan under $10 a month, but it will have more limitations than before.

"I too, am pretty annoyed with their price hike. This is your business, Netflix. How hard is it to actually keep things consistent?" said Hannah of Lynnwood, Wash., in a ConsumerAffairs.com review.

"More importantly, how hard is it to get a little progressive and allow streaming for ALL the movies instead? One month a DVD is available for live streaming, then the next, it's back on the DVD list. And I can't ever get through their customer service # to complain," Hannah said.

Actually, Netflix would probably like to accommodate Hannah's streaming request.  But part of the reason it revised its rates is that it must pay the movie studios higher fees for streaming video than for DVD rentals. 

As it reported earnings, Netflix said it is bracing for even more angry consumers when the new price structure goes into effect, and as a result, believes it could suffer a temporary drop in new subscriptions.

In an interview with The New York Times, Netflix's CEO Reed Hastings said he only expects “a few” consumers to cancel the service, but the company has to prepare for the impact. He also said he believes the new price structure will help the bottom line in the fourth quarter and beyond.