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Netflix reels in new subscribers

Gregory Warner Jan 26, 2012

Kai Ryssdal: A moment now to observe a rare corporate resuscitation from the brink of what looked to be looming disaster. Remember last year when Netflix jacked up its prices? Split its DVD-by-mail service off from its streaming one and promptly lost 800,000 subscribers and saw its stock get hammered?

Fast-forward to today: Netflix shares were up 22 percent today on a stellar earnings report. All those angry subscribers? Not so angry now, I guess.

The company says its signed up more than half a million new ones. But just what exactly does “new subscriber” mean? Not so simple a question, as Gregory Warner explains.

Gregory Warner: Let me start with a non-Netflix story. When Alicia Weeks moved to Seattle, she noticed lots of yoga studios offering the same introductory deal. Ten days of unlimited yoga for $10.

Alicia Weeks: And I’m just hoping from studio to studio without — you know, trying to give the minimal amount of information to get back in touch with me — and kind of get as much yoga as I can for $10 for 10 days.

Can any of those studios count Alicia Weeks as a member? Well, not yet.

Now look at Netflix. Of the 600,000 new subscribers it says it added by the end of December, 97 percent of them were still on a free trial.

Tony Wible tracks tech stocks for Janney Capital Markets. He explains that Netflix was still losing customers in October and November because of its price hike. Then came Christmas, with all those gifts of iPads and Kindles and Nooks.

Tony Wible: A lot of devices were sold with free Netflix trials embedded within them.

All you had to do was click the Netflix app and sign up. And hundreds of thousands of people did.

Barton Crockett: You know, a lot of people have become pretty expert at signing up for free offers. So I think one of the risks for Netflix is that people start to game the system.

Barton Crockett follows media stocks at Lazard Capital Markets. He says Netflix has a strong retention rate. Nine out of 10 free subscribers become paying customers, at least for a little while, either because they like the movies or they forget to cancel.

Which reminds me — you Christmas newbies? Your one-month free trial expired yesterday.

In Philadelphia, I’m Gregory Warner for Marketplace.

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