Why Netflix Is Still #Winning

Recently Netflix announced its third Quarter financials and the headlines since have not been kind. Over the past three months the darling of the post-Blockbuster era has been criticized for their July price increases and accused of ignoring customer loyalty. And let’s not forget the collective facepalm heard ’round the world when Qwikster was announced…

Now, another wave of criticism is sweeping through Los Gatos as Netflix’ stock price continues to tumble. Despite a reported $29 million dollar (4%) increase in revenue quarter-over-quarter, the main talking point among pundits is the 803,000 net decrease in subscriptions since Q2. This is a lot of lost subscriptions, to be sure, but it represents only 3.25% of Netflix’ total subscriber base. When you consider that wireless service providers consistently experience churn rates of 2-4%, and recognize that Netflix’ subscriber losses were driven by a 60% price increase, the company hardly seems deserving of such unrelenting criticism.

So against this backdrop, has consumer behavior on Netflix.com changed since the price increases were announced? I went to Compete.com for answers and found that the quarterly average Unique Visitors (UVs) for Netflix.com have declined by only 3.21% since Q2 – a modest decline that is perfectly in line with the drop in total subscriptions. And the engagement metrics tracked on Compete.com show large increases for Netflix.com in the past year, with “Average Stay” increasing 27% from 14 minutes to 17 minutes and 50 seconds since June 2011.

This means that those going to Netflix.com are staying there longer and likely watching more videos. In addition to “Average Stay”, “Attention” is also up 14% since June 2011 (Attention considers all the time we collectively spend online and then determines what percentage of that time we spend on a given site). So it seems that though the price increases have crowded out some consumers of Netflix’s services, engagement among remaining consumers has increased and things are perhaps not as bad as the headlines would lead us to believe.

For years now, Netflix customers have been getting essentially two services for the price of one and in the face of ever rising licensing fees that is just not possible for Netflix anymore – and some consumers seem reluctant to concede this. It’s also worth noting that the new price point that they’ve established for their Watch Instant service is exactly in-line with the rates that competitor sites such as Hulu and Amazon Instant are charging and their new single-DVD subscription price is 20% cheaper than it was before.

This is mostly uncharted territory for the online video industry and we’ve yet to see the Netflix price hike fully shake out, but a recent survey by Compete revealed that 45% of consumers who streamed video content did so via Netflix. So it looks like given all the recent news about their PR woes and subscription losses – Netflix is still sitting pretty comfortably on top.

If you have any opinions about this, make yourself heard in the comments section below!

About Nathan Kollett:
Nathan Kollett is an Analyst in the Technology & Entertainment vertical at Compete. Nathan is a graduate of the University of Massachusetts Amherst and earned his B.A. in Economics with a minor in Mathematics and Statistics. You can follow him on Twitter at @nathankollett and connect with him on on Linkedin