High prices infuriated Netflix customers to the point that Netflix lost 800,000 subscribers. In this July to September period, Netflix’s stock has plummeted the most that any DVD by mail rental has since 1999. In response, Netflix decided to raise 400 million US from external investors by issuing debt and selling 2.86 million shares of stock. Analysts believe that fundraising is a sign for trouble ahead and predict that the stock price will fall from its current $69 to $45. Netflix’s CEO believes fundraising will pay off; “It’s not that we need the money, but it’s always nice to have more money than you need,” quotes Netflix spokesman Steve Swasey.
It is evident that Netflix needs to change their current plan to increase their revenue. The increase in external investment in the company will lead to a loss of control of the company as each investor is credited voting rights. In addition, Netflix has failed to notice that their product is price inelastic. The raise in price discouraged majority of their customers. Instead of looking for payouts, Netflix needs to adjust their prices to accommodate their target market.