How Much Does Consumer Outrage Cost Companies?

by Anthony John Agnello | August 5, 2011 1:50 pm

How Much Does Consumer Outrage Cost Companies?

angry man 000008485817XSmall 80 e1287168719421 How Much Does Consumer Outrage Cost Companies?The Internet has, if nothing else, democratized rage to an impressive degree. Even the smallest voice becomes a booming fount of vitriol once it has access to Twitter and a caps lock button. Where businesses found their products judged by the way consumers spent in the past, now the court of public Internet opinion judges goods and services long before they even hit the market.

According to Mashable‘s Chris Taylor, social networks like the aforementioned Twitter are fueling consumer outrage[1], giving people a platform to air their discontent where they had none before. He points to the recent hike in Netflix (NASDAQ:NFLX[2]) subscription fees as a prime example of how loud consumer rage can get. Netflix’s Facebook page was slammed with more than 79,000 comments after the announcement of the price increase. An additional 4,000 comments were posted on its official blog, where the announcement was first made. That’s a lot of angry customers, right?

Not that many, actually, in the grand scheme of things. Netflix has more than 25 million subscribers. Even if every one of those enraged comments were made by individual subscribers, they still represent a miniscule fraction of Netflix’s actual business. So, how much do these rage-fueled fiascos actually cost businesses?

Netflix Subscription Hike

Changes to Netflix’s subscription fees won’t take effect until September, so it will be impossible to determine just how big an impact the hike will have on the company’s bottom line until the end of the fourth quarter. Research firm The Diffusion Group has a decent idea, though. A survey conducted by the group in July estimates that Netflix might lose 2.5 million subscribers [3]over the next quarter. Assuming those 2.5 million subscribers paid for the $10-per-month streaming and by-mail DVD subscription that’s being eliminated, Netflix stands to lose $300 million in annual subscription revenue.

PlayStation Network Hack

Sony (NYSE:SNE[4]) was bombarded by bad press and negative consumer feedback on Twitter and Facebook through April and May after the PlayStation Network, the online gaming network and storefront on the PlayStation 3 game console, was attacked by hackers. The outrage was justified. The personal information of 77 million PSN subscribers was compromised[5], including credit card details.

How bad was Sony hit? The company reported a $191 million loss for the April to June quarter. Consumer confidence in the PlayStation 3 clearly dropped as well — Sony managed to sell just 1.8 million systems in the quarter during the hack, compared 2.4 million during that period in 2010. The company also spent $170 million in offering affected consumers fraud protection and free content.

iPhone 4 Antenna

It’s hard to imagine that Apple‘s (NASDAQ:AAPL[6]) iPhone 4 got off to a rough start, considering the company sold more than 20 million smartphones in the second quarter of 2011 alone. The most recent model of the device was the focus of a PR blowup after it released, though. In July 2010, “antennagate” was one of the top trending terms on Twitter, referring to the faulty antenna in early iPhone 4s that caused calls to be dropped if users held the phone too tightly.

Apple at first denied there was any problem with the device before backtracking and offering early purchasers a free protective case for their phones. Apple reportedly spent $175 million on the free case program. Considering the company has $76 billion in cash right now, negative Twitter trends didn’t hurt it that badly.

Xbox 360 “Red Ring of Death”

Before Twitter and Facebook rose to their current prominence, Web rage forced Microsoft (NASDAQ:MSFT[7]) to spend a record sum of money on placating angry customers. In 2007, Microsoft was forced to admit that an abnormally large number of Xbox 360s were failing due to faulty components. Enough consumers were reporting the “red ring of death” in online communities that the problem began to get coverage in mainstream press.

Microsoft eventually announced a $1.15 billion warranty plan to help customers affected. Two years later, warranty company SquareTrade found in a survey that nearly 24% of Xbox consoles still fail within two years of purchase.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[8] and become a fan of InvestorPlace on Facebook[9].

Endnotes:
  1. are fueling consumer outrage: http://www.cnn.com/2011/TECH/social.media/07/22/social.media.outrage.taylor/index.html?hpt=te_r4
  2. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  3. might lose 2.5 million subscribers : http://www.homemediamagazine.com/netflix/report-netflix-lose-more-than-2m-subs-24598
  4. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  5. of 77 million PSN subscribers was compromised: http://investorplace.com/39614/sony-security-breach-2-billion/
  6. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  7. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  8. @ajohnagnello: http://twitter.com/#%21/ajohnagnello
  9. InvestorPlace on Facebook: http://www.facebook.com/pages/InvestorPlace/178906405484848

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