Report: 2 million+ subscribers will cancel Netflix

 Thomas Hooke / netflix.com

Netflix mailers will still go out to members, just not as many as before

Despite the outcry after Netflix announced a 60 percent price hike and separate DVD and streaming plans, most will stay with the service and change their plans, according to a recent survey.

After interviewing 500 customers who currently subscribe to both DVDs and streaming, TDG (The Diffusion Group) "predicts that between 12 percent and 15 percent of dual-service Netflix subscribers will in fact cancel their service in the next six months specifically because of the new pricing scheme," which amounts to between 2 million and 2.5 million subscribers.

In its announcement today of its second-quarter earnings, Netflix revealed it now had 25 million members all over the world, from 15 million a year ago. "During the quarter, the streaming only plan continued to gain in popularity, with nearly 75 percent of our new subscribers signing up for it," Netflix stated. "With the rapid adoption of streaming, DVD shipments for Netflix have likely peaked."  

Netflix seems to verify TDG's prediction: "Our estimate is that by end of Q3 in the U.S., we’ll have about 22 million people subscribing to our streaming service, about 15 million people subscribing to our DVD service, and about 25 million total U.S.subscribers (with about 12 million people subscribing to both streaming and DVD)."  

While that seems like a lot — and it is — it's a loss that Netflix can deal with, with that kind of buffer. In the TDG analysis, it's "a cost Netflix considers justified and reasonable in order to (a) realign its cost and revenue structure, and (b) wean its subscribers away from DVDs and toward streaming video (a strategic imperative)."

Netflix expects to see the brunt of the impact from cancellations in its third quarter, when the pricing changes take full effect (beginning in September).

In the 22-page report, TDG elaborates a bit more about that business rationale: "Simply stated, Netflix has been on a rip, fueled by a growing base of very satisfied consumers—especially when it came to streaming video users. At the same time, Netflix was spending a fortune to buy distribution rights to better content on better terms and planning for rapid international expansion."

Have you canceled your Netflix membership?

YES. I decided to make a clean break with any Netflix plan.NO. I am keeping a DVD plan, but canceling streaming.NO. I am keeping my streaming plan, but canceling DVD rentals.NO. I am keeping my plan as is.VoteTotal Votes: 27159

When Netflix first broke the news to its subscribers, 80,000 vented on the company's Facebook page about it, with most saying that they were ready to cut ties completely. (When last we wrote about it, there were 30,000 comments.)

But now, this targeted report from TDG appears to show some compromise on the part of Netflix members, while still registering their disappointment over the new pricing plans: 70 percent of the respondents said as much when asked. 

Due to the price increases (i.e. a plan that included both DVDs and streaming went from $10 to $16), TDG found that 44 percent of the report's participants were likely to cancel their DVD subscription, while keeping streaming; 34 percent would do the opposite. At least in this questionnaire, streaming seems to have the edge.

Those who said they'd ditch Netflix entirely named "a rental kiosk like Redbox" as the number one replacement option (42 percent), while 17 percent were prepared to check out streaming alternatives, such as Hulu Plus and Amazon. 

Maybe one of the reasons folks are going to end up cooling down and sticking with Netflix has to do with its long history of customer satisfaction, including a No.1 ranking as of February in delivering "the best overall attributes of any brand."

Another reason: most of the respondents on this survey (75 percent), at least, already pay more than the minimum. A little over 46 percent paid between $10 and $14 monthly and nearly 23 percent pay between $15 and $20 a month. Participants in the report rented an average of six discs a month, with most falling in the 3 to 5 disc range (41.4 percent). 

To soften the blow, Netflix is adding more to its streaming content: In news that should make quite a few "Mad Men" fans happy, Netflix shared that "in a few days, every episode of 'Mad Men' will become available in syndication exclusively on Netflix." 

Also some newish-oldies but goodies will make it too:

We reached agreements with Miramax and Revolution Studios to add several hundred movies on a rotating basis, giving our subscribers access to critically acclaimed films such as "Pulp Fiction," "Good Will Hunting," "Black Hawk Down," "Across the Universe," and "Shakespeare in Love” as well as box office favorites like "Daddy Day Care," "Hellboy," and "Anger Management."

If Netflix is indeed trying to wean its customers off DVDs and onto streaming, it seems to be working. On average, respondents spent 7.1 hours a week watching streamed content, with younger subscribers likely to log more hours than older members.

While there were varying degrees of dissatisfaction with Netflix following the announcement of the separation plans, the biggest group still says they're definitely not going to cancel: almost 24 percent of respondents. The next biggest block, at 16.7 percent, remained neutral in their plans.

Ultimately, the report shows that Netflix may be able to weather this storm and come out ahead:

"TDG believes that, when all this plays out, Netflix will ultimately be a winner because of this new pricing scheme — but this is only a cautious endorsement of the move. The company is growing so fast that it is very likely any cancellations will be made up over one or two quarters, which leaves them with increased prices, decreased cost of service (primary postal savings), and the majority of their legacy subscribers still on board. Translation: greater revenue and improved margins, a great combination to help Netflix fuels its growth."

They definitely don't see Hulu Plus or Amazon as real competitors: "We are also mindful of Hulu Plus and Amazon Prime. Hulu Plus added about 325,000 subs in Q2; we added close to 2 million. We invest much more than Hulu Plus in content, in marketing, and in R&D ... So far, we haven’t detected an impact on our business from Amazon Prime." 

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