Netflix Rate Hike Fallout: Angry Customers, Competition Steps Up

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Let the backlash begin. Following the announcement of a major price hike on the popular DVD and streaming combo package offered by Netflix, both customer loyalty and market confidence in the company are on shaky ground.

As I told you earlier in the week, Netflix has been facing serious concerns about its future due to contract problems with Sony. The reality of having to pay more for content caused the company to respond with a 60% rate hike for subscribers, many of whom were caught entirely off guard.

The response to the rate increase has been swift - Deadline reports Netflix shares dropped 4.1% and the competition has stepped up to catch the subscribers who are leaving in a huff. Blockbuster is offering a special deal to existing Netflix customers who want to jump ship: a 30 day free trial of their DVD by mail service that includes access to new releases a month earlier than Netflix and the opportunity to exchange discs in the store.

Of course, Blockbuster canít offer the streaming content that has been the reason behind Netflixís quick climb to the top of the heap. The service has been steadily drawing viewers away from cable in favor of the much cheaper streaming option, but with prices on the rise customers are riled up. The word around the internet is that many Netflix subscribers plan to drop the service in favor of HuluPlus, or drop to the streaming only option and get their DVDs elsewhere.

Odds are the rate increase isnít high enough to send those customers who did abandon cable to make their way back, but the question on everyoneís mind today is whether the rate increase is enough to cover both the increased cost of content and to make up for the lost subscribers. If it isnít, Netflix will have to give serious thought to whether or not they can risk further subscriber losses by increasing rates even more Ė or lose them due to lack of content. The final fallout from the rate increase is yet to be seen, and Netflix has some serious questions to answer regarding just how they plan to stay on top of the streaming video heap.

As for me, I havenít yet decided what to do with my Netflix subscription. Iíll likely drop down to streaming only and look to Redbox for DVD rentals, or even consider checking out Blockbusterís 30 day trial offer. Iím also waiting anxiously to see what other services step into the fray; the streaming content market is about to change, and I canít wait to see whatís next.
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