But, other than those 5-6 DVDs, I didn't use the service. Did I cancel? No way! What if I wanted to get a DVD-by-mail or a movie sometime in the near future? No, my last Netflix rental, the Curious Case of Benjamin Button sat, unwatched, by the DVD player for a good 6 months.
And then, Netflix announced their price increase. Now, finally, I had an excuse to cancel my membership. The price increase, though not a life changing amount of money per month, made me realize that I wasn't getting my money's worth from the service. Cancellation was easy -- just a few clicks on the web page and dropping Benjamin Button back in the mail (still unwatched).
I'm a huge fan of subscription businesses -- they are easy to evaluate from an investment perspective, and they are, by far, the easiest way to "big money" -- find a product business that excites people enough to buy a subscription, and you've got yourself a money printing machine. Even subscription service businesses are great.
One of the key components to these businesses is "underutilization" -- effectively monetizing those who pay for your service or product but don't use it. When the subscription price is small enough, it disappears into the credit card statements and lazy people won't bother to cancel. Only a major shift in business strategy and the associated announcements will awaken these sleeping customers and get them to act, removing very valuable margins in the process.
Another great example of this happened recently: Bank of America hiking the price of some ATM cards to $5 a month. As soon as that happened, I knew it was going to be a disaster for BofA and unlikely to stand. ATM cards are the equivalent of a subscription business with small fees. Raising those prices would likely send millions to the bank to close their accounts. My thesis held true in my local branch of BofA here in Newport, WA. Immediately following the price hike announcement, the branch was overrun with customers looking to close and/or modify their accounts.
So, here is my investment thesis for you: any time you see a subscription business make a change to their pricing, "back up the truck" and sell that stock short.