Written on Wednesday,
July 13th, 2011
at 07:09PM

Recently online streaming giant, Netflix, announced a price increase to their extremely popular streaming service (how extremely popular? How about 22% of all internet traffic in the U.S. is from Netflix) — raising their streaming only rates from $4.99 to $7.99. Netflix started off as a revolutionary DVD “rental” system relying purely on mail delivery (where you manage your queue online). At the time everyone thought it was interesting, but would never catch on or last because it’s inconvenient. Overtime they’ve proved that theory wrong (boasting 23 million subscribers and $62million quarterly profits).

Netflix homepage

Netflix Increases prices to $16 a month, people die.

The fuss comes on the heels of another Netflix rate increase (wherein the company raised the prices of their DVD services by $1 and introduced the streaming only service for $7.99 in November 2010). All that Netflix has done is eliminate their $4.99 DVD service (which gave users 1 DVD, and no more than 2 in a month), kept their streaming prices and decreased 1 DVD (as many in a month as you want – which was $9.99 and will now be $7.99). What they eliminated are the “bundle” system of streaming/DVD, clearly moving toward a more profitable revenue model, as well as moving the company and it’s users into the future of entertainment content consumption (and eliminating DVD’s all together).

As the demand for streaming content increases, so do the costs of not only providing the bandwidth to serve the content but also the distribution deals necessary to deliver timely, popular content. A recent deal struck with AMC to bring Mad Men to online streaming (no one company has been successful at inking a deal) cost Netflix an estimated $75 million. The cry for successful and popular films will no doubt have similar price tags. Add to the cost the fact that distributors are unlikely to want to eat into their DVD sales by offering streaming content after a films theatrical release. But money talks. And the best way for Netflix to grow is to expand their offerings and deliver more timely content — all of which will cost them money out of people’s travel navigator rfid wallets.

The alternative options for users is to unsubscribe and either pay per film or television show (which can cost from $5 to $75 either from Amazon, iTunes a physical DVD or a trip to a movie theatre — again, all for 1 item), stay on cable (setting you back $80 to $150 a month, which limits your choices and means of viewing to a TV and an air date, unless you have DVR which usually costs $15-2o a month, add premium channels which again do not offer thousands of movies at your disposal at any time for unlimited viewing on nearly any device; let alone the fact that you probably only watch 15% of the available channels making it a colossal waste of money). If you believe the future of entertainment is in Blu-ray and DVD’s, you’re welcome to it. If you think that $8 (or even $16) is too much for streaming content to numerous devices is too expensive or doesn’t offer enough options — then you need to evaluate what you expect for what you pay (and read again your other options). Better service comes at a price and sadly in this country we expect far too much for far too little.

4 Responses to I Want What I Want, And I Want It Now

  1. Netflix is great and thus far I’ve been super impressed with their forward thinking. The problem here is kind of a chicken or the egg deal. They need the buying power to purchase more content but consumers want new content before they are willing to pay more. The issue that they’re are running into is that for most people this is a luxury service and thus only works at a certain price point. Many people that have cancelled their satellite and cable services but the majority probably aren’t going to take that leap yet.

    I cancelled my cable subscription for a couple years. For the most part I was fine with it but the Netflix streaming catalog started to wear a little thin for me. I love Netflix and want them to succeed but I’m not willing to make the leap to all discs or all streaming. And the combo is now out of my luxury comfort zone.

    My disappointment is not driven by the “I wants”. It’s driven by dollars and cents and what I’m willing to pay for a non-essential service. If you expect subscribers to pay 60% more for something they already have, I don’t think it’s wrong to expect a better service at the moment of the increase. They are not entitled to my money the same as I’m not entitle to their service.

    I wish them the best but unfortunately this is probably where Netflix and I part ways. If only for a bit.

  2. I understand that. I think people got spoiled in a transition. I seriously doubt that people watch more than 8 movies on DVD in a month (8 is based in the $8 price point for a single DVD at a time on Netflix); making RedBox (at $1 a movie) that perfect impulse, stop gap solution. If you watch more than 8 DVDs a month than Netflix is cheap. Or one can cancel and try and find a solution as cheap with as many unlimited options – even with cables choices, I can’t see that it makes economic sense – you’d pay 15x more for content you’d not always want, at the leisure of someone else if they want to show it or not. You can even throw in Hulu+ (which nearly covers all your possible TV options). What I do get is those who want premium TV, like HBO, Showtime, etc or want live sports – but then Netflix was never an option, and thus a price increase is moot.

    You’re right though, it is a chicken/egg in regards to pay more now in hopes of getting more. Netflix has proved over 10 years that they “get it”, they don’t just do things without having done research; or they’d have failed as everyone predicted a decade ago.

    My point is that $16 for loads of really great content (if you don’t see it, then you’re not looking, or you have distinct – aka unpopular – tastes), ON DEMAND that you simply cannot find anywhere else. One spends $16 for 3 people to eat at McDonalds, or for a movie and small popcorn in a theatre. If it’s economics, than it’s preference, not price.

  3. That being said, who cares what I think. I don’t know anyone else’s budgets or spending habits; it just doesn’t make sense to me, from my perspective. But then again I don’t have cable (well, that’s not true, we have 20 “lifeline” channels for $20 a month, 4 of which are stupid shopping channels, which is really a waste because we never watch it, but Time Warner won’t let us remove it because of internet or something).

  4. I think you’re being a bit polemic about the issue, and a bit presumptive about others’ motivations. I don’t see the outcry as coming from Americans who are used to getting too much for too little. Nor do It think the new pricing is excessive. I actually think it’s still undervalued. But I’m not going to offer them more. And I won’t like it when they raise the price in the future. Nobody likes price increases. And there’s nothing wrong with not liking price increases, particularly when there isn’t an immediate benefit gained by the price increase. It’s just annoying. That’s all.

    I know that Netflix has to make money. The thing that is annoying me and everyone else I know who is annoyed is that I will have to pay a separate fee for something that I am currently not paying a separate fee for. It’s not free to me – it’s included. It’s like the airlines charging for baggage. Is it unreasonable? No. Is it worth it? Yes. Is it annoying? You betcha. And I don’t think there’s anything wrong with being annoyed. I’m not going to quit Netflix. It’s still a good deal, we’re hooked on streaming, and there isn’t another easy way to rent DVDs in our area (RedBox & Blockbuster’s whatever box don’t have good selection). And when you say there’s no other option, you’re right – there’s no competition.

    I think Netflix needs some real competition. Not because it would make their service cheaper. It might actually make it more expensive. But I think it would drive the industry in the streaming direction, which is the way that it’s been going for a while, albeit slowly and jerkily.

    The only thing that I think Netflix could have done better in this whole thing is to split the fees for existing customers without increasing the price. Then increase the price. But that wouldn’t have made a huge difference. They considered it, I’m sure. That said, I can’t imagine that anyone didn’t see this coming, much like the data caps on wireless data plans. I was happily shocked when they started offering streaming as part of their subscription. I am unhappily unshocked that they’re upping their rates.

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