Sunday, September 18, 2011

Attention Sirius: Netflix Just Lost 600,000 Subscribers...

Is Sirius playing an incredibly dangerous game here? The question is being posed against a horrific situation for Netflix, which is now losing approximately 600,000 subscribers since June on the backs of an unpopular rate hike (among other modifications). Sirius XM Radio is preparing its own increases on January 1st.

And, that's just the month-end forecast of the Netflix damage, following the September 1st hike (a more exact, mid-month figure is 594,000). In fact, Netflix is now projecting a subscriber total of 24 million by October 1st, one million less than earlier forecasts. The increases reach 60 percent in some cases, and include plenty of aggressive DVD-specific bumps.

And part of that was good strategy. The company expected some attrition and took the bitter pill, sure, but this is far worse than most expected. Accordingly, Netflix shares have entered into a freefall, tanking 19 percent (to $169.25) in Thursday trading, and suffering on the Friday floor as well. That is the largest drop since April of 2008.

All of which raises the question: exactly how will Sirius XM Radio subscribers react to the upcoming rate hike? The Sirius plan calls for a monthly, base-rate increase from $12.95 to $14.49 a month, a move that sounds marginal but could be substantial from a psychological pricing standpoint. So far, so good, at least on Wall Street, where investors are praising the increased per-user revenues.

Let's just see if customers - and their price sensitivities - react the same way. At present, Sirius counts roughly 21 million subs.

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