For Netflix, there's a way out of pricing mess

Netflix customers are making perhaps the most damning comparison a day after the rental service announced it was raising its prices: They're saying Netflix is just like the cable guys.

Seething blog posts and comments are piling up across the Web in reaction to a price hike that means customers who want access to DVDs as well as streaming video must now pay $15.98, up from the $9.99 they used to pay for both.

Netflix founder and CEO Reed Hastings may feel a little shell-shocked by the testy reaction. Hastings and his staff have enjoyed nearly unprecedented customer loyalty and popularity as the Web's most popular movie-rental service. Hastings is the guy who championed consumers against Hollywood and helped take a digital baseball bat to the much-loathed late fees from Blockbuster and traditional video-rental services. He is the guy who mailed movies to users' front door when they used to have to drive to rent. Netflix is regularly at the top of consumer-satisfaction polls. Would we have a term like cord-cutting without Netflix?

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And that's why the backlash has been so extreme. Many of the company's 23 million subscribers are outraged over the money issue and they're just plain disappointed in the way Netflix is behaving. Dumping a 60-percent price increase on customers and casually announcing the move in a blog post without warning isn't what Netflix is supposed to be about. There's no doubt that Netflix's brand is suffering. Good will and trust is being drained, and quickly.

I wrote in an earlier piece that Netflix is still the best deal available, but plenty of people don't want to hear that. Fair enough. The increase is too much for some and they will bolt. But for those on the fence, I say start up a petition if one hasn't been circulated already, complain on the company's blog, make yourself heard before giving up on the company.

Hastings just might listen. In 2008, Netflix reversed a decision to eliminate user profiles, the account feature that enabled users to split movie rentals among separate queues for a household, after receiving a torrent of complaints and after an online petition was circulated.

The way for Netflix to unwind this is to offer consumers a break on the $15.98 or let keep two discs out for that price. Forcing subscribers to pay as much to rent DVDs as they do for streaming when many of them use the discs only to supplement the streaming library just doesn't seem fair.

Here's another hint, at minimum, Hastings needs to make a statement and own up to this and explain the need for it to customers. The announcement was mishandled and the company right now appears arrogant. Sure, Netflix has a good track record with consumers, but the company's customers have helped spread the word about the service for years and Netflix needs to continue to treat them as a partner.

Even if Netflix is a better deal than competitors, there's another option: going without streaming video. In this era of belt tightening, it would be easy just to pitch it all.

There's no denying that Netflix is facing skyrocketing costs for films and television shows. The truth is that a price increase was inevitable. Hollywood execs have told me that they are still learning how to price Internet-distributed content and they believe they have undervalued their content in initial dealings with Netflix. In addition, more competitors are entering the market. More competitors means content creators can hope for a bidding war.

Don't believe it? Take a look at Wall Street's mute reaction to the pricing move. The company's share price went up after Netflix announced the increase yesterday and in afternoon trading today the stock was up 2 percent and just under $300 a share. Analysts who cover Netflix have predicted price hikes for a long time because there were few other ways the company could afford to expand its library--which customers are discovering is lacking in some important content areas.

When confronted by the argument that Netflix must raise prices to pay for content, one of my CNET colleagues, Maggie Reardon, may have succinctly sized up what many Netflix users are saying: "Who cares? That's their problem. Paying for content is the excuse that cable companies have used for years to justify price hikes."

The longer Netflix waits to respond to customer outrage, the more likely it is that negative attitude will be set in stone.