Netflix Still Suffering From Difficult Year

December 1st, 2011 at 1:30 pm

Running a company like Netflix nowadays seems like walking a tightrope. With the difficult year it has so far endured, it does not help a bit when even analysts are making dismal outlook for the company. One such analyst has such insight. According to Michael Pachter from Wedbush Securities, he rates current Netflix stock to “underperform”, a downgrade from a “neutral” status.

It was only this year that Netflix began to show some signs of a company on a downward spiral of sorts. It all started when the company decided to split up its movie DVD renting and online streaming services. Netflix may have felt that they could make more revenue by doing so. But they forgot to take in how their customers may be taking the split off of the services. It proved to be quite a wrong move for the company.

With news of having to get two subscriptions instead of the all-in service that they get, many of the customers were dismayed by Netflix’s actions. Customers saw it as just a way to get more money from them. As a result, Netflix’s move resulted in 11 of their previous subscribers shipping out of the service.

Pachter expected that about 7 million of those customers will eventually subscribe to either of the two services while the others may quit the service that they offer altogether.

For Netflix, this showed poor insight of what keeps their customers staying with their services. The plan to split out their DVD rentals and streaming services and the ensuing effect showed that they did not try to get some customer inputs before going on with the said plan. If only they knew that this would have happened, then they would have second thoughts of pushing on the plan. But they only cared about was getting some additional revenue streams to earn more from their customer base. In the end, it backfired on them quite disastrously.

So what is in store for Netflix in the next year? Well, it may not be so good, according to Pachter. Because of its plan going sour, it may have alienated some of its customers as well as any of the momentum it has built up with its previous all-in subscription service. Netflix may now need to spend more on marketing and other similar expenses just to build some customer trust. Its recent downgrade would further stretch into the next year, where even the company itself is expecting a net loss for 2012. Even if it is able to turn things around, it will still be a tough and difficult road for Netflix.


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