SOURCE: The Diffusion Group

The Diffusion Group

July 25, 2011 10:52 ET

TDG: Netflix Subscribers Crying Foul May Be Crying Wolf

Flight From Netflix More Myth Than Method, Disenchanted Subscribers Likely to Tweak Service, Not Cancel

FRISCO, TX--(Marketwire - Jul 25, 2011) - According to new research from TDG, 70% of Netflix dual-service subscribers -- those that use both DVD-by-mail and streaming video -- are disappointed with Netflix's new pricing scheme. However, most are unlikely to cancel their subscription but reduce their subscription to a single service -- that is, choose either DVD-by-mail or video streaming but not both.

TDG's research found that 34% of dual-service subscribers are to varying degrees likely to cancel their streaming service but keep DVD-by-mail. It seems having subscription access to a large library of discs is more important than on-demand access to a growing but more limited streaming collection.

Conversely, 44% of dual-service subs are to varying degrees likely to cancel DVD-by-mail but keep their streaming service. Access to a limited but growing streaming library on all their connected devices is more important than having access to a larger, more current library of physical discs.

In other words, while DVDs are important, a dominant and growing percentage of Netflix subscribers consider streaming video more important.

"This is an important finding," notes Michael Greeson, TDG Founding Partner. "It suggests that, at least among dual-service subscribers, preferences have tipped to favor video streaming over physical discs. This was a central assumption behind Netflix's risky decision to change prices at this time in the game."

The risk that Netflix faces is self-evident, notes Greeson: a solid 37% of dual-service subscribers are to varying degrees likely to cancel service because of the new pricing. For the most part, however, this is a natural reaction to being asked to pay more for a valuable service for which they previously paid less. "Once they see what alternatives exist in the marketplace, Netflix won't look so bad."

Nonetheless, TDG predicts that between 12% and 15% of dual-service Netflix subscribers will in fact cancel their service in the next six months specifically because of the new pricing scheme -- a loss of between 2.0 and 2.5 million subscribers. Significant, of course, but a cost Netflix considers justified and reasonable in order to (a) realign its cost and revenue structure, and (b) wean its subscribers away from DVDs and toward streaming video (a strategic imperative).

TDG's new report, Gauging Consumer Reaction to Netflix's New Pricing Strategy, highlights the results of the firm's latest study, including viewing likely reactions through the lens of demographics (age, income, presence of children in the home), Netflix use (DVDs viewed monthly, weekly streaming habits), and a variety of other factors. As well, the report discusses the content sources to which Netflix cancellers will most likely turn.

For more information about TDG's new report, contact Andy Tarczon at 469-287-8060 or visit our website at

About The Diffusion Group

TDG provides actionable intelligence on the quantum shifts impacting consumer technology and media behaviors. Since 2004, our market research and advisory services have helped hundreds of technology vendors, media companies, and service providers understand how consumers access, navigate, distribute, and consume broadband media -- whenever and wherever they may be.

For more information about The Diffusion Group, visit our website at

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