Netflix Still Stealing Cable Customers
By Matt Algren. April 6, 2012, 11:00 AM CDT
It’s been a pretty bad 12 months for Netflix. Ever since the video juggernaut’s hefty price increase last year, they’ve been trying to make a comeback. First, the movie rental company split its streaming and DVD services entirely, and then they stitched them back together and promised no more price increases for the foreseeable future. Along the way, Netflix CEO Reed Hastings announced that the company would enter the video game rental market with Qwikster, but quickly backed away from video games altogether in January.
Customers haven’t been kind to Netflix since the price hike, and neither have investors. So, it must have come as a relief yesterday to learn that according to a new report by the Convergence Consulting Group (CCG), a million American households cancelled cable or satellite service in 2011, due in large part to a new reliance on Netflix’s streaming service.
We estimate 112,000 TV subscribers were added in 2011, down from 272,000 in 2010, and forecast 185,000 TV sub additions for 2012. 2000-2009 annual TV sub additions averaged 2 million. Based on our TV Cord Cutting Model (takes into account economic conditions, annual subscriber additions, digital transition), we estimate 2.65 million (2.6%) US TV subscribers cut their TV subscriptions 2008-11 to rely solely on Online, Netflix, OTA, etc, 1.05 million (1%) in 2011 alone. We forecast cord cutters will reach 3.58 million year end (3.6%) 2012. Kiosk, Mail & now Streaming Rental (assuming sufficient usage) offer a lower-price value proposition & have radically altered the Rental channel while negatively impacting DVD/Blu-ray/Download sales, and encroaching on TV subscription.
This new report verifies a trend noted last August by the AP and earlier in the year by cable companies themselves, which ascribed the loss of customers solely to the American economic climate rather than prices and new online competition. Hopefully, CCG’s report will get cable companies on the track to adjust prices for cable packages in a more palatable way.
It’s not necessarily smooth sailing ahead for Netflix, of course. With its recently rocky history, Hastings’s company has to regain a lot of goodwill and convince angry subscribers to return. CCG’s report notes that programming costs skyrocketed in 2011 and will continue a sharp increase this year, which is to be expected given the dramatic increase in streaming usage. Netflix and other video-on-demand services like Hulu Plus and Amazon Prime need to manage those increases while adding subscribers to keep pace. Another Qwikster debacle could be disastrous, but barring that, this is a good sign for Netflix’s long-term survival.
About Matt Algren
Matt is a self-taught tinkerer who's fallen madly in love with social media and neato Android stuff. He writes on an eight-year-old computer that constantly freezes up on him, leading him to teach the neighborhood kids many new swear words when he has his windows open. He's probably eating chocolate ice cream in his home in Southwest Ohio right now. It's delicious.