Ever since Netflix announced their price hike and attempted a change in policy over two years ago, things haven't been the same for the company. While they may have been able to break records and post profits in questionable quarters, subscribers keep leaving for sometimes, quite literally, greener pastures. Now, with a new, red competitor by the name of Redbox Instant emerging, Netflix is facing even more customer losses.
Even with a competitive edge, Netflix lost 470,000 subscribers to their disc-by-mail option this past quarter alone, ending June 30. This brings total subscribers down from 8 million to just over 7.5 million. This marks the largest downturn in subscribers to the disc rental subscription since 2011, when Netflix lost 800,000 members after the price change. The good news is that Netflix was able to turn a profit of $109 million, which is a 47 percent margin for discs. The streaming-only business model, interestingly enough, only generated a 22.5% margin of profit.
Through it all, Netflix CEO Reed Hastings is still committed to mailing you DVDs should you choose that option. However, with Redbox Instant by Verizon stepping up with an ability to allow you to rent four discs at a time, along with unlimited streaming to over 5,000 shows and movies, it appears some stiff competition isn't just waiting in the wings - it's here, waiting for Netflix to counter the attack. Redbox, of course, is only $7.99 for both of those services combined, where that same $8 only gets you disc rentals from Netflix now.
B. Riley & Co. analyst Eric Wold commented shortly after the earnings call about the new game in town,
We continue to believe that the $8 combo disc/streaming subscription plan offered by Redbox Instant will represent an attractive option to Netflix DVD-only subscribers that are paying the same price for disc access only. Nevertheless, we take this trend reversal with Netflix DVD-only subscribers as an optimistic sign that Redbox Instant is already having a competitive impact on the industry.
Could Redbox signify the tide turning for the successful endeavor that is Netflix? As always, competition breeds innovation and gives companies the reason to push the envelope, where otherwise they would not take such a risk. I'm excited to see where this war will go, as Redbox has, at least by the numbers, been the only real competition that has hit Netflix where it hurts: in their profit-and-loss statement.