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Shares of Netflix have faced a 65% sell-off since their all-time high in July when the company announced plans to raise prices for dual use of its DVD-by-mail and streaming services.
While the company’s chief Reed Hastings apologized for the hasty pricing move last month, he chose not to reverse the decision. Instead, the company added fuel to the fire by announcing the separation of the two services.
The one-two-punch meant that dual customers were not just paying nearly double the amount, but were also going to have to use twice the web sites, twice the usernames and twice the passwords.
Realizing its decision was a bit too hasty, Netflix tried to recoup some loses this week by making the quick decision to kill the rebranded DVD-by mail service Qwickster just a month after it was born, thus keeping the two services under one united Netflix brand.
Hastings had noted at the time that there is a difference between moving too quick and moving too fast, admitting the company was at fault with the rapid adoption of Qwickster.
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Things seemed to be looking up at first for Netflix as its stock rallied 8% following that announcement, however its shares quickly started to retreat once customers realized the company was not wavering from its price hike.
Consumers have not hidden their disdain for the price increase, and the company has lost more than a million subscribers over the last few months. Netflix's plunging stock, which hit new 52-week lows this week, now threatens to erase the company's incredible 435% rally since the beginning of last year. And to make matters worse, the once beloved movie renter now faces fierce competitors looking to chomp away at its customer base and market share.
While many say the company still has time to recover, the similarities between Netflix and the troubled BlackBerry maker are eerily similar. Many are now starting to wonder whether Netflix's missteps have put it down a similar path as RIM.
“Similarly to Netflix, RIM was untouched until a few missteps,” said Rob Enderle, principle analyst at the Enderle Group. “Both companies did this when being faced with their most powerful competition yet.”
Mirroring RIM's Errors
It seems RIM is in its current situation largely because it was inactive at a time when the industry was calling for change. The smartphone maker was slower than its competitors to innovate, thus forcing subscribers to rivals.
“RIM was slow to adapt, so slow that they’re probably in a very difficult and potentially terminal competitive position,” said James Awad, a managing director of Zephyr Management.
While it hasn't been slow to adapt, Netflix has similarly spooked customers over the last few months with its back-and-forth unreliable decision making. Its competitors are not yet worthy to steal away a majority of its subscribers, but the mess has forced many customers to hunt for better services.
“People don’t like to change vendors, so the last think you want to do when facing major competitors is scare your customers so they actually start looking for change,” Enderle said. “Once they go away, the chances of them coming back are slim to none.”
On top of RIM’s sluggish movement, the company took advantage of customer’s loyalty, practically holding them hostage to gain leeway in an intellectual property dispute with the U.S. government and opening access to its private systems to appease regulators.
“People started looking at RIM differently,” Enderle said.
Netflix’s price hike is similar in that it assumed most customers would remain loyal to its streaming service despite the higher cost. It also seems the company hadn’t factored in the fact that separating its DVD-by-mail and streaming services essentially removed the company from the core business model that customers had come to love.
“Here you have just basically a company violate their core value proposition,” Stephen Beck, marketing consultant at CG42, told FOX Business. “I can’t think of a company that has executed a marketing strategy and business development strategy that is based on upsetting its heaviest users and been successful.”
That coupled with its loopy decision making has caused Netflix to lose some of its credibility among subscribers, just as RIM did three years ago.
“Netflix moved so quickly that they didn’t think through the implications of the change,” Awad said. “It takes some discipline on part of management to move soon enough and have the most well thought out plan.”
Is Netflix on RIM’s Same Troubled Path?
It has been difficult to watch the once unstoppable tech giant fall so hard that it is now fighting just to retain that same level of customers. However many experts say Netflix still has a chance to reverse its errors and pull out of this self-created mess.
When RIM had its missteps, competition was already becoming well established and the cost for customers to switch carriers was still relatively low. RIM lost a great deal of customers that has proved to be “incredibly difficult” to get back, according to Enderle.
That's not to mention the global outages RIM's BlackBerry faced this week that have only worsened matters for the mobile carrier.
Similarly, Netflix still faces challengers that are “strong and numerous,” according to Beck, though they aren't quite up to the same caliber as Netflix.
“It has a better opportunity than RIM does to turn this around, because while competitors are stronger, there really isn’t a service as unique and comprehensive at Netflix with its both hard disk and streaming options,” Enderle said.
However, Netflix's challenges are also numerous, and its business model is under pressure partly because of sharply higher licensing costs. The company’s content deals are also threatened. Starz, one of its most valuable movie studios, terminated renegotiations with Netflix last month.
Still, Barton Crockett, senior analyst at Lazard Capital Markets, told FOX Business that he thinks Netflix will “pull it together from here.” And that opinion seem to be reverberating throughout the industry.
“It’s hard to count this management team out but they face formidable forces that will only grow harder over time,” Crockett said.
Of course, the company still hasn't changed its decision on raising prices, which fueled this whole corporate crisis to begin with, and the long-term effects of that have yet to be seen.