Laura Allen Phillips, Research Services Manager
The roughly 800,000 (net1) Netflix defectors must be looking somewhere for their content. Prior to last Thursday's revenue reports, that somewhere was assumed to be the Redbox or Blockbuster kiosk. According to the results of our Netflix Flash Report Survey, published by TDG shortly after Netflix's initial announcement, 42% of those inclined to cancel the service due to the price increase would be turning to a rental kiosk as a primary source of home video content.
But, unfortunately, for Coinstar's army of red boxes, that somewhere has thus far turned out to be somewhere else. Although Coinstar third quarter revenues did rise to $465.6 million, topping, albeit only slightly, the pre-Netflix rate change analyst forecast of $462 million; the increase was not at all the avalanche of cash expected from former Netflix subscribers. So what happened? Where are all the Netflix subscriber dollars going?
The simplest possible answer is nowhere, at least not yet. Slightly over 14% of the Netflix dual-service users surveyed for the Flash Report said they rented less than three video discs from the service per month. Doubtless, many within this group rely more on streaming content access than on physical media. These content "streamers" are, assumedly, less frequent users of the disc-by-mail option.
Others, however, are just not watching much Netflix content in either form. These are the light users who may enjoy the convenience, as long as it is well priced, but they really do not "need" more video options. Raise the price, and this group will be among the first to leave. Unfortunately for Netflix's competitors, this group is either happy enough with their OTA, satellite or cable provider content; watching content from their own video library; or just turning elsewhere for entertainment (books, video games, long walks in the country, etc.). Whatever the reason, they are less driven to augment their existing premium content source and are not as likely to hungrily storm the neighborhood Redbox. Yet.
1Although Netflix' reported net losses were 800,000 for 3Q 2011, reported subscriber churn for that quarter rose from 3.52 million (2Q 2011) to 5.52 million; thus Netflix subscriber shed increased by 2 million following the rate change announcement. This 2 million subscriber defection is in line with TDG predictions which estimated the change would cost Netflix between 2 million - 2.5 million users.
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