Will Netflix backtrack on its rate hike (and would it matter)?

Streaming video and DVD rental company now being punished by Wall Street


Netflix has been taking an unbelievable pounding -- first from outraged customers and now from Wall Street -- since announcing on July 12 that it is increasing its subscription rates by 60 percent.

Shares were trading early Tuesday morning as low as 253.62, or 9.9 percent below Monday's closing price of 281.53.

This after Netflix announced second-quarter results Monday that showed a 57 percent increase in profits, but warned that the price increase will hurt subscriber growth and revenue in the third quarter.

"Some subscribers will cancel Netflix or downgrade their Netflix plans," chief executive Reed Hastings wrote in a letter to shareholders accompanying the earning release. "We expect most to stay with us because each of our $7.99 plans is an incredible value. We hate making our subscribers upset with us."

The sense you get is that Netflix is prepared to ride out the storm. But you have to wonder how much of a storm the company is willing to endure. Thousands of Netflix customers are incensed, much more so than I would have expected for what amounts to a $6 a month price increase. I wrote as much in a blog post titled "Hey, Netflix crybabies, get a grip."

Yes, it was snarky. (I'm in the page-view business, people.) But I was looking merely at what I considered to be a paltry number, and thus missed an important -- and understandable -- emotional reaction: Netflix subscribers felt betrayed.

Actually, it was more than a feeling of betrayal. People felt abused and manipulated by a corporation they generally had liked and trusted. Which, of course, heightens the sense of betrayal.

When the oil companies screw us over with unwarranted price hikes while pulling down record profits, few people act amazed. Indeed, the vast majority are entirely unsurprised, if not happy. Most grumble a bit, but very few talk about abandoning driving or coordinating a boycott. (Personally, I'd like to see a bit more actionable outrage, but I'm no better than most of us.)

With Netflix, however, it's almost as if a trusted friend stole your money, or your spouse was caught cheating. Obviously it's not that serious; I'm just talking about the psychological and emotional impact of betrayal. It's a very powerful thing.

So the question is this: Should Netflix ultimately decide the price hike is hurting more than helping its bottom line, would it roll back the price hike, even partially? And even if it did, would it be too late to mitigate the damage and restore a sense of trust among its angry and departed customers?

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