Netflix's restructuring wasn't supposed to end like this.
The Los Gatos, Calif.-based mail-order and online video service has a history of home runs. Founded in 1997, the idea of launching an online video rental service turned out to be an instant success. Netflix went public in 2002 with a subscriber base of 600,000, according to a report by The New York Times.
Having come up with a bevy of services options over the years, including online streaming, the company was riding high going into 2011. But then over the summer it announced a plan to separate the mail-order from the streaming. The plan was coupled with a hike in subscriber fees of up to 60 percent. The most basic plan of $9.99 for one rental at a time and unlimited streaming, was raised to $15.98 a month. Netflix said in July that the moves were being made so that prices "better reflect ... underlying costs."
The response from the customer base was swift: 800,000 subscribers canceled their plan in the third quarter, and the company was forced to notify 15 employees that they would be let go, according to Bloomberg. The staffers were from the human resources division, and had been brought on board in anticipation of growth after the service operations were formally split.
The rapidly changing fortunes of Netflix are being received as a warning call for all digital service operations. The old maxim of not counting your chickens before they hatch is of course applicable, but especially so for web ventures which can see customer bases switch loyalties in such a rapid fashion.
And according to a post on InvestorPlace.com, Netflix's problems were also tied into the business model it embraced. "Investors are becoming increasingly skeptical of outfits that promise fantastic earnings growth but don't return any cash to shareholders in the form of dividends (or even stock buybacks)," Richard Bland wrote. "Before the next mega-bull market is ready to lift off, I predict the "Look, Ma, no dividends!" philosophy will have been completely discredited. We're getting there, one Netflix disaster at a time."
Netflix, for its part, is charging full steam ahead. With a staff of 2,180 members, the company is going forward with plans to expand into Great Britain and Latin America over the next year, Bloomberg says.
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