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Netflix, which earlier this summer announced that it would raise its prices by 60 percent - charging people who were paying $10 a month for one DVD at a time plus unlimited online streaming - said yesterday that it expects this move will reduce it subscription base from 25 million customers to 24 million.

The desertion by one million customers would seem to be linked to the fact that the price increase was aimed directly at Netflix’s traditional base - people who get their DVDs delivered by mail. Streaming alone, which is a relatively new part of the Netflix business model, did not see a price increase in the Netflix model, and the company has long said that it believes that it believes the future is in streaming movies via the internet.

The company also has been facing pressure from its content suppliers, who object to they call Netflix’s “aggressive pricing.” As the Wall Street Journal reports, “The bear thesis on Netflix is playing out. Entertainment companies that control popular video content have realized their own businesses would be undercut if they license recent movies and TV shows for Netflix's streaming service. Witness the recent decision by Liberty Media's Starz cable channel to cut off a crucial supply of recently released movies for Netflix's streaming offering. That protected Starz's lucrative deals with nervous cable and satellite TV operators.”

Shares in Netflix have dropped 40 percent since the new pricing policy was announced, according to published reports.
KC's View:
This can’t be a huge surprise to founder/CEO Reed Hastings, but it isn’t a positive narrative. I still think that at some point they may roll back that price increase, just to put some of the tumult to rest. And the real lesson is how fragile customer loyalty may be.