Lesson for Lovefilm as Netflix sheds subscribers

NETFLIX, the US DVD rental giant, has revealed that it expects to lose 600,000 customers during the quarter running from June to September.

The slump, is likely to put the fear into Lovefilm which earlier this month hinted that digital-only subscriptions could be around the corner.

It was Netfix's switch to streaming-only rental deals which knocked the .6 off its 24.6m customer base.

Like Lovefilm, subscribers previously got streaming included in their DVD rental by post price.

When the company split streaming and by post packages customers trying to sign up for their old dual deals found that the price was increased by as much as 60%.

Unsurprisingly, many chose to leave rather than pay the vastly increased price.

Lesson for Lovefilm

The Netflix price hike has been pretty nasty all round: customers are incensed; investors have lost money on the share price which dropped 19% on news of the subscriber exodus and commentators wasted no time in rubbing salt in the wound by calling customers "entitled yuppies" .

Price increases when streaming-only subscriptions arrive seem pretty inevitable.

For a start, streaming is an entirely different market, one with a higher price point.

Lovefilm already share a platform on internet-enabled TVs and PS3s with a number of different pay-to-view and subscriber services including Blinkbox, Sky and Virgin Media.

It'll need cash if it is to continue its acquisition of streaming deals and compete with those big names.

Perhaps Lovefilm will think twice before introducing such a large increase all at once, though.

The Netflix row illustrated that customers expect to be rewarded for their loyalty so they could also consider cutting the longest-standing subscribers a break.

And, in general, Lovefilm will need to take a look at how Netflix communicated the price increase to its customers.

The letter sent out to Netflix subscribers read: "We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each."

Now, couldn't you have worded that a little better Netflix? In a way which shows some concern for the annoyance of paying 60% more, for example?

Lovefilm's PR machine doesn't generally get glitches.

Streaming-only deals could be the biggest test yet of the DVD rental providers mettle, though.

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