Bloomberg News

Netflix User Satisfaction Plunged After Price Rise, Plan Changes

February 21, 2012

Feb. 21 (Bloomberg) -- Netflix Inc.’s customer satisfaction plunged in the fourth quarter, a reflection of consumer anger over rising prices and changes to its subscription plans, according to a survey.

Satisfaction with Netflix, the online and mail-order video service, slid 14 percent to 74 from a year earlier on a scale of 0 to 100, according to the American Consumer Satisfaction Index. That was below the 76.1 rating of all retailers and one of the biggest drops in more than 16 years of tracking, Ann Arbor, Michigan-based ASCI LLC said in a statement.

Netflix angered customers in July with a 60 percent increase in prices for users who both stream videos and get DVDs by mail. The company in September tried to rebrand the mail- order business Qwikster and force some customers to set up separate accounts, before giving up. Last week, Netflix took steps to encourage sign-ups to its DVD mail-order business.

“While the plan was abandoned and the company has since started adding subscribers, the toll on customer satisfaction is heavy and Netflix remains in a precarious position relative to the rest of the industry,” the group said in the statement.

Consumers rated Los Gatos, California-based Netflix as the worst retail website in the last three months of the year, ASCI said. The index was created by the University of Michigan’s Ross School of Business.

Netflix has begun adding customers after losing 800,000 in the third quarter. The company signed 610,000 new customers in the fourth quarter, to bring the total to 24.4 million.

The shares have gained 76 percent this year after a 61 percent loss in 2011. They closed Feb. 17 at $121.85 in New York, little changed from the previous day.

DVD Customers

Netflix, which typically vies with online retailer Amazon.com Inc. for first place in satisfaction, is adding content and working to improve its website, according to Steve Swasey, a spokesman.

“We are the first to admit we did have some missteps,” Swasey said in an interview. “It’s ours to gain back.”

Netflix on Feb. 17 tempered its drive for new streaming customers by allowing people to sign up for DVD-only plans on its website. Previously, the company had removed links on its website for the $7.99 mail-order plan. Users first had to enroll in an online plan before they could make changes in their accounts, Swasey said.

“Nothing’s changed, we’re not backpedaling on our belief the DVD business is declining and the streaming side of the business is growing,” Swasey said.

Content Costs

Netflix is in a race to acquire new streaming-only customers to balance rising content costs and fund an international expansion, Michael Pachter, an analyst at Wedbush Securities in Los Angeles, said. He has an “underperform” rating on the shares.

“They make less than a dollar a month on a streaming customer and $3 to $4 on a DVD customer,” Pachter said. “They would argue that streaming is a fixed cost, which would be true if they weren’t constantly paying more for content.”

The American Consumer Satisfaction Index is based on interviews and a model developed at the University of Michigan that maps customer expectations, perceived quality, value and satisfaction against customer complaints and customer loyalty.

Another group produced similar findings. Netflix’s customer satisfaction plummeted seven percentage points in 2011, according to data collected by the bi-annual Foresee E-tail Satisfaction Index, according to a Dec. 28 statement.

--Editors: Rob Golum, Anthony Palazzo

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net


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