Netflix shares plunged more than one-third in early trading on Tuesday October 25, 2011. Domestic users fell by almost 1m during the third quarter. This was not expected and cause some stir in the market . Netflix had 23.8 million total U.S. subscribers as of Sept. 30, down from 24.6 million three months earlier. Around 21.5 million customers had streaming subscriptions, and just under 14 million had DVD subscriptions. Most of Of Netflix customers mixes both streaming and rentals. This decrease is not even the end by Dec. 31, Netflix expects those numbers to drop further ouch ! I don’t think that expansion in the U.K and Ireland will make a huge difference in their global profitability.

The reason behind drop in subscriptions:

  • Netflix tempted to split the online and physical DVD businesses.
  • Of course the big price hike, the price for customers who want both services jumped from $10 to $16 a month.
  • Moving too fast.

Background on Netflix:

Netflix was founded in 1997, became quickly the leaders in  video rental market as it charged customers to pay a monthly fee and they would mail the DVD with no late return fees. As they started streaming films over the internet in 2007 the customer numbers drastically increased to 25million. Along came the success of the share prices rising to its peek during the summer of 2011. Changes that they wanted implement backlashed.  Netflix tempted to split the online and physical DVD businesses then they decided not to only after three weeks of the initial announcement.
The company, decided to  keep the recent 60 percent price increase in place, declared that it had moved too fast when it tried to spin-off the old-fashioned DVD service into a new company called Qwikster, angering many subscribers. “We underestimated the appeal of the single Web site and a single service,” Steve Swasey, a Netflix spokesman, said in an interview, before quickly adding: “We greatly underestimated it.” “Companies rarely die from moving too fast, and they frequently die from moving too slowly,” Mr. Hastings wrote in a blog post that night.
So what were the issues? In the competitive  business environment organizations go through radical changes, reengineering their business processes to stay competitive in the market in terms of critical success factors like cost reduction, service improvement, and quality enhancement. To be honest, many organizations do not make much of an effort to manage change. They simply announce what the changes will be and expect everyone to comply. The leaders generally fail to minimize the negative consequences of transition; they “greatly underestimate.” Change needs to be made and to make it right it has to be implemented fast. They knew they would upset some customers and they knew some would leave but seriously I don’t think they estimated this much. Would this have happened if they have listened to their customers? I think this is where they have failed.
Netflix has grand plans for the future I hope listening to customers will have a place in there. In the mean time, if you are one of the unhappy customers of Netflix then  you can take a quick look at your options.
Look at the competition:

BlockbusterHuluPlusAmazon Instant VideoZedivaRedbox and of course there is the itunes.