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Netflix blames customer confusion for performance dive

Netflix CEO Reed Hastings thinks subscribers misinterpreted the company's changes. Photo: Getty
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Netflix co-founder and CEO Reed Hastings has blamed a surprisingly lacklustre second quarter on customers misunderstanding a minor change to the company’s payment policy.

In a letter to shareholders on Monday (local time), Mr Hastings revealed the company’s subscriber base grew by only 1.7 million members this quarter, below its projected figure of 2.5 million.

Netflix stock also experienced a nearly 15 per cent plummet in after-hours trading on Monday.

“We are growing, but not as fast as we would like or have been,” Mr Hastings said of the disappointing earnings, uncharacteristic of a company that has experienced exponential growth in recent years.

Mr Hastings pointed to media coverage surrounding Netflix’s decision to finish grandfathering older payment options as the catalyst for members leaving the service.

We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering.
Netflix CEO Reed Hastings

“Gross additions were on target, but churn ticked up slightly and unexpectedly, coincident with the press coverage in early April of our plan to un-­grandfather longer tenured members and remained elevated through the quarter,” Mr Hastings said in a letter to investors.

In May 2014, Netflix announced its plan to end a two-year period of grandfathering, releasing existing customers from older payment plans and encouraging them to switch to updated payment options.

These price changes came into effect in May this year, but do not apply widely – especially in Australia or New Zealand where prices remain the same since Netflix’s March 2015 local launch.

Users were concerned they would have to pay more for content like hit series Orange is the New Black. Photo: Netflix
Members were concerned they would have to pay more for content like hit series Orange Is the New Black. Photo: Netflix

“We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering,” Mr Hastings said, pointing to a Google Trends graph which showed a sharp spike in the frequency of the search term ‘netflix price increase’ around May this year.

“We’ve looked at everything, and the fact that it’s coincident with that Google Trend data we included really indicates that people don’t like price increases. We know that.”

Regardless of these setbacks, Netflix put its total global subscriber base at more than 83 million people. The company keeps mum on its numbers in individual countries, preferring to only report on global figures.

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