Netflix’s brand has taken another very public beating this week with the announcement that Wal-Mart is ready to settle their portion of the current Class Action lawsuit against both of them; costing Wal-Mart approximately $27.5 million.
At issue? Allegations that Netflix and Wal-Mart may have conspired to inflate DVD rental and purchase prices, which ultimately could have boosted revenue (at customers’ expense) and stock prices between 2005 and 2011.
Netflix has decided to rigorously defend its position, citing that the suit has no merit.
I am not a lawyer, but I wonder where in the heck Netflix’s collective head is located these days. Can they possibly think that going to trial in front of a jury (of their customers?) with all of the negative press related to price increases (to their customers?) is going to benefit them in some way?
“Putting the case before a jury poses a risk to Netflix at a particularly vulnerable time. Some of the evidence in the trial will likely expose the factors that Netflix considers in setting its prices. That’s become a prickly subject since Netflix a September change that raised its rates by as much as 60 percent for customers who want to rent DVDs through the mail and view video over high-speed Internet connections.
Netflix attorneys believe the company’s recent price increase shouldn’t be mentioned during the proceedings because it might (create) prejudice the jury, according to court documents filed Tuesday.
In an overview filed in preparation for the trail, the lawyers suing Netflix allege the company overcharged its subscribers by $494 million to $654 million after the Wal-Mart agreement. If a court agreed with those amounts and decided Netflix broke federal antitrust laws in the process, the damages owed by the company could be tripled.”
Wonder how Netflix’s attorneys are going to wash their customers’ brains of the most recent 60% price increase.
In other news…
Netflix filed a 10 Q/A on November 7, 2011. In it, they say…
“In July 2011, we introduced DVD only plans and separated the unlimited DVDs by mail and unlimited streaming into separate plans. This resulted in a price increase for our members who were taking a combination of both our unlimited DVDs by mail and unlimited streaming services. We made a subsequent announcement during the quarter concerning the rebranding of our DVD by mail service as Qwikster and the separation of the Qwikster and Netflix websites.
The consumer reaction to the price change, and to a lesser degree, the branding announcement, was very negative, leading to significant customer cancellations and a decline in gross subscriber additions. We subsequently retracted our plans to rebrand our DVD by mail service and separate the DVD by mail and streaming websites. If we do not reverse the negative consumer sentiment toward our brand and if we continue to experience significant customer cancellations and a decline in subscriber additions, our results of operations including our cash flow will be adversely impacted.
Following the announcement of changes to our plan offerings, pricing, and branding in the third quarter of 2011, domestic churn increased to 6.3% for the third quarter of 2011 as compared to 4.2% in the second quarter of 2011 and 3.8% in the third quarter of 2010. This coupled with a decline in domestic gross subscriber additions of 11.3% from June 30, 2011 to September 30, 2011 resulted in negative domestic net subscriber additions of 0.8 million.
Despite the loss in domestic subscribers in the third quarter of 2011, our consolidated revenues were up 4.2% for the three months ended September 30, 2011 as compared to the three months ended June 30, 2011, as most cancellations occurred late in the quarter. Domestic gross subscriber additions were up 18.9% for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010, contributing to the increase in total subscribers of 49.2% as of September 30, 2011 as compared to September 30, 2010. This was the primary driver in the 48.6% increase in consolidated revenues for the three months ended September 30, 2011 as compared to September 30, 2010.
We expect that as a result of the increase in subscriber cancellations and migration of our subscribers towards streaming only and lower priced DVD plans, offset by increases in international revenues, consolidated revenue will be relatively flat until we can achieve positive net subscriber additions.
In the third quarter, our International segment reported a contribution loss of $23.3 million and we expect that our planned expansion to the UK and Ireland in the first quarter of 2012 will result in further losses as our investments in content in particular will exceed revenues while we grow our subscriber base. As a result of the flat consolidated revenues and the increasing investment in our International segment, we expect to incur consolidated net losses in 2012.”
Netflix Share Price and Trading Volume Chart
If you would like to review the past couple of months’ of insider stock transactions, please go here.
Today, Netflix’s close of day stock price was down to $81.18.
The stock prices tied to customer experiences case study continues.
Disclaimer – I have no financial interests in Netflix, Wal-Mart, or Redbox.
© 2011 Mary Ann Markowicz