Google TV price slashed to $99 as Logitech stumbles

Logitech told investors this week that it is preparing to slash the price of its Revue Google TV set-top box to just $99, down from $249. The price cut is meant to “remove price as barrier to broad consumer acceptance,” it stated in its investor slides. (PDF)

In other words: The Revue just didn’t sell. At all. “Sales of Logitech Revue were slightly negative during the quarter, as returns of the product were higher than the very modest sales,” the company stated in its prepared remarks. (PDF) And it’s not like Revue sold well before: Logitech made just $5 million from Revue sales in the previous quarter.

The price cut will mean that consumers will be able to buy Google TV units below cost, something Logitech has accounted for with a hefty $34 million one-time charge. The company now hopes Revue sales will finally pick up once Google releases the next version of its Google TV platform later this summer, which will bring access to the Android Market and other improvements. It then wants to sell more accessories to Google TV owners, which kind of sounds like what then-CEO Gerald Quindlen told me about Logitech’s original strategy when Google TV was officially unveiled a year ago.

Speaking of Quindlen: The big proponent of Google TV stepped down after the company released its earnings this week, with Logitech Chairman Guerrino De Luca stepping in as the acting CEO. Quindlen’s resignation was also prompted by disappointing revenue from Logitech’s core and European business, which resulted in a net loss of $30 million for its first quarter of fiscal 2012.

It may be too early to forecast the future of Google TV from these stumbles, as a number of major CE makers are expected to adopt the platform once the next iteration is available. However, it sure looks like Logitech bit off more than it could chew by embracing the platform early on.

Check out this interview with Quindlen during happier days:

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Netflix: Price change not about killing DVDs

With a recent change to its pricing plans that separated streaming and DVD-by-mail subscriptions, there’s been a lot of speculation that Netflix was seeking to kill the DVD-by-mail offering. But on the company’s second quarter earnings call, Netflix CEO Reed Hastings said that the decision was made in an effort to prolong a side of the business that wasn’t getting enough attention.

Hastings said today that he thinks the DVD-by-mail offering will be able to last a long time, by generating satisfaction for a number of users that aren’t as interested in its streaming service. The CEO gave the example of rural customers who don’t have the available bandwidth to take advantage of its streaming service, but were paying $2 more to get DVDs. By separating that plan out, the company will be able to target existing customers that fit that type of demographic.

“What we wanted to do is make clear that DVD has a longer and bigger life than some people think,” Hastings said.

The stated goal is to shrink the DVD business slowly as opposed to shrinking it rapidly — which is what would have happened if the company continued to spend most of its cash and resources on growing its streaming business. By breaking the DVD operations into a separate business unit, Netflix will be able to separate out profits and losses of the distinct businesses and invest in each appropriately.

By doing so, the company will also have a dedicated team that is focused on DVDs and improving the customer experience of DVD users. Of late, much of its investment has been focused on streaming, leaving heavy DVD users out in the cold. Take, for instance, a recent redesign that was built around making it faster and easier to stream movies through the service. With resources dedicated solely to DVD, Hastings said that the company is working on a number of initiatives it plans to launch in the fourth quarter aimed at improving the DVD service.

Furthermore, the company will get back to marketing DVDs, which have largely taken a backseat to its streaming offering. Over the past several years, Netflix has focused on courting new users with the promise of its $7.99 streaming-only plan, a strategy was largely working. In recent quarters, Netflix has aggressively grown its customer base, with about 75 percent of new subscribers in the second quarter signing up for the streaming-only plan. But interest in its DVD plans has largely gone stagnant as a result.

Most saw the price change as a way for Netflix to force subscribers to choose one plan or the other — with the expectation that most would pick streaming over DVD — but the company appears bullish on the DVD business remaining viable, at least for some time. At the end of the third quarter, Netflix expects to have 25 million subscribers in the U.S., with 15 million remaining DVD-by-mail customers. While DVD shipments have most likely peaked, Netflix still expects 60 percent of its customers to pay at least $7.99 for DVD rentals by the end of this quarter.

Hastings once said that he saw Netflix as a streaming company that also happened to offer DVDs by mail. If we take him at his word today, the move to separate DVDs from streaming is a bit of a change in strategy for the company. As opposed to having its operating margins squeezed as a $2 add-on to the streaming offering, breaking out DVDs will effectively enable the company to maximize its investment in a business that already has a large user base and a bit of legacy infrastructure built out to support it.

Image courtesy of Flickr user Scott Feldstein

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Netflix price hike to slow subscriber growth in third quarter

In its letter to shareholders, (PDF) Netflix gave some expectations for how its pricing change and expansion into new markets will effect its growth over the coming quarters. The good news? It expects growth in international markets to ramp up in the second half. The bad news? Growth in the U.S. will largely be flat this quarter as it works through the impact of its pricing change.

About 75 percent of all new subscribers sign up for the streaming-only plan, which is likely one reason why Netflix felt comfortable changing its pricing plans to begin with. At the same time, the company acknowledged that many subscribers — especially those who used both streaming and DVD, were unhappy with the change.

“We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we’re working hard to further improve the quality and range of our streaming content in Q4 and beyond,” it said in its note to shareholders.

Netflix therefore expects total net additions in the third quarter to be lower due to the pricing change, with revenues only growing slightly during the quarter. Those revenues will once again begin to ramp up in the fourth quarter, as the typically strong holiday season helps drive new net additions during the quarter. As a result, Netflix expects the fourth quarter could be its first-ever $1 billion quarter.

Netflix expects to have about 25 million subscribers by the end of the third quarter, with approximately 12 million subscribing to both the DVD and the streaming service services at the higher $15.98 price plan. It expects 10 million subscribers to go streaming only and just 3 million to rely solely on DVDs.

As we expected, the fourth quarter will also finally bring a separation in the costs of operations and revenue benefit of both its DVD and streaming services in the domestic market. That will give financial analysts a better view into how each part of the business — domestic DVD, domestic streaming and international — are performing. The company is also adding the “contribution profit” metric to its financial results to help analysts understand how each segment is contributing to overall company growth.

While Netflix still had few details to share over exactly when its Latin America expansion would happen, it did give some insight into its plans for a third international market. That expansion will happen in the first quarter and Netflix acknowledged that it could even mean launching in multiple markets. That fits with rumors that have it launching in the U.K. and Spain early next year. As a result, it’s also increasing its forecast for operating losses in its international business, which will grow from $70 million in the second half to $80 million and include pre-launch expenses for the “one or more countries” it may launch in in the first quarter of next year.

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People really hate the Netflix price hike

Subscribers have been up in arms since Netflix announced a changed pricing structure earlier today that will raise the price for a combined DVD and streaming subscription from $10 to $16 a month. The company is also offering DVD-only and streaming-only subscriptions for $8 a month each, but most people don’t seem to like the prospect of having to chose: Netflix blog has seen more than 4,200 comments, most of which are negative, with a number of customers threatening to cancel.

Countless consumers have also turned to the company’s Facebook page, with negative feedback far outweighing any other kind of response. And on Twitter, the discussion around the plan changes has made “DVDs” an unlikely trending topics in a number of cities. Check out a few highlighted tweets to see how people feel about the company’s plans:

What does all of this uproar mean for Netflix? Of course, it’s unlikely that any price increase would be met with thumbs-up by many consumers. However, the intensity of the backlash seems to suggest that Netflix really does have a problem.

Netflix has long enjoyed a lot of good will from its customers, simply due to the breadth of its DVD offering. Consumers tolerated the lack of selection in the company’s streaming catalog because it was seen as a value-add to their existing DVD subscription. Recent hiccups, such as Sony removing titles from the streaming catalog, also didn’t lead to many complaints.

However, with streaming and DVDs effectively being separated from one another and users being forced to pay twice as much, many customers are seemingly losing their patience with Netflix. The company may have to go back and do a better job at explaining these changes — or even unveil some great new streaming catalog additions before the September 1 deadline that will force people to pay more, chose between streaming and DVDs, or cancel altogether.

Image courtesy of Flickr user soukup.

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