Tim's Blog

Netflix has just announced that company is going to be unprofitable in 2012. One of the major issues for it is the expensive expansion to UK and other regions. However the loss of subscribers due to bad management is also responsible for that.

Since Summer 2011 Netflix’s market value has decreased by 75%. This is happening because of the management decision to increase price for services. More than a 60% increase happened for services offered by Netflix, now the cheapest subscription which includes both services (online video streaming and  DVDs by mail) is $16, compare to $10.
On Septemeber 15th the subscribers responded by abandoning the service. In total 1 million out of 24 million subscribers left because of the price changes.

However CEO Reed Hastings did not stop, 3 days later he announced that DVDs by mail will be offered by Qwikster, rather then Netflix. This caused more subscribers to leave. Later Reed Hastings canceled Qwikster, which made many people surprised by the CEO’s making this flip-flop move.

In the result of bad management decisions company dropped 75% in value, and now is facing difficult time, as more and more serious players like Google and Amazon enter market for streaming, and costs for Netflix are higher, as the payments for copyright will rise significantly. This is the situation when company becomes unsuccessful mostly because of the decisions senior managers make. In July company’s shares were sold for the highest amount in Netflix’s history, and now they are lowest since almost two years ago.

Image Source: http://www.cbc.ca/news/business/story/2011/11/22/netflix-shares.html