Netflix’s Price Increase is the Stick after the Carrot

July 14, 2011

Disks are dead. It’s only a matter of time before DVDs and Blu-rays will be a thing of the past for the mass market. Yes, Internet streaming will eventually kill DVD and Blu-rays (sniff, sniff for Blu-ray). Netflix knows it and they want you to know it too. With a variety of carrots, Netflix hoped you would get the hint. First, Netflix offered a streaming only plan late last year for only $7.99.  Enough of us didn’t go for it. They removed DVD features from their developer API. Then Netflix redesigned their website. Go to the front page as a non-member and you will see they don’t even talk about DVDs being delivered by mail. Log in as a member and streaming takes center stage. Well, carrots didn’t work so it’s time for a stick. Netflix is telling you if you want DVDs and streaming its going to cost you more. Actually, what they are really saying is they don’t want to be in the DVD business anymore. To Netflix, the future is now.

Getting out of the DVD business will eliminate some of there high costs around postage and processing. Some folks think it’s a mistake for Netflix to get out of the DVD delivery business. Netflix can buy any titles they want. It’s a proven business model that’s profitable. But is it the future?

There’s been a lot written that the studios are going to stick it to Netflix for streaming rights.  Apparently, many of their content deals are set to expire within a year or two. The studios are going to jack up the price of content and put additional restrictions in place. This analysis assumes that the studios will behave like mindless Cylons bent on Netflix’s destruction. The reality is that both Netflix and the studios are in this to make money. No other streaming service is delivering the number of customers that Netflix has (24 million at last count).  DVD sales are significantly down. While the studios will demand a bigger take as Netflix’s revenue rises, they realize that no one else is paying these amounts for content. Netflix is a golden goose for the studios (and the goose is going international).

For customers, stop fretting about the price increase since you didn’t watch the DVDs anyway. This is a good excuse to finally mail it back and move to the $7.99 streaming-only plan. If there’s a recent release you really want to watch, you can rent it on iTunes, VUDU or Amazon for the cost of Sweetened Iced Tea Lemonade at Starbucks. If you do it twice a month, it would cost about the same as Netflix’s stand-alone DVD plan. Alternatively, you could quit Netflix for a few months and go with Hulu Plus or Amazon Instant (for a year) to mix things up a bit. The nice thing is that you didn’t sign a contract with Netflix. Netflix has enough confidence to do without them.

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Tags: DVD, Netflix, streaming

8 Responses to Netflix’s Price Increase is the Stick after the Carrot

  1. Michaelnortonmusic on July 14, 2011 at 11:17 pm

    I respectfully disagree in some points of your column.  I do watch the DVD's, and to me, that added value to the service.  I think Netflix's biggest mistake was with communication and pricing strategy.  Had they of communicated the changes farther in advance, and introduced an incremental pricing structure, the changes would have been more widely accepted.  Instead, their communications border on, "we don't need you…see ya!"  They have managed to recieve a ton of negative publicity and lose goodwill with their customers…this is bad business period.  The simple fact that the price increased by such a significant amount, I have had to think about the value of the service…why make me reevaluate the value of your product?

  2. Brennok on July 14, 2011 at 11:18 pm

    Well except we only watch discs and do little to know streaming. I tend to avoid digital media though since the cost doesn't cover the loss of benefits compared to physical media.

    Most likely we will stay at the 1 disc out but we average a $1 a disc so it may be cheaper to go with red box a block a way.

  3. The Hub on July 15, 2011 at 6:51 am


    For myself, there will always be a place for disks as long as they offer the best picture and sound. I really wonder when there will be a true Blu-ray quality streaming service (VUDU is close).

  4. The Hub on July 15, 2011 at 7:05 am

    I agree that Netflix could have handled the public relations around this better. It would have been have nice if they coupled the announcement with the release of a bunch of new content or improved the streaming quality (i.e. 1080p for devices besides the PS3).

    For the pricing, sometimes it's better to pull the band-aid off quick. My hope is that they use the additional projected revenue to obtain some additional content. There's definitely a loss of value for the consumer here and they need to add content to retain their streaming only customers.

    I think they ran the numbers and realized they were still going to end up with more revenue even with some significant subscriber loss.

  5. JohnOCFII on July 15, 2011 at 10:37 am

    Yes, it is the stick after the carrot.  I'd have preferred a side dish of asparagus.

    Is streaming the future?  Sure it is.  Is it here now?  It depends.  If you are satisfied with an ever-changing catalog of material with sub-standard audio, and widely varying quality of video, it is here now.  If you'd like, say, the whole of the Netflix DVD/Bluray catalog (complete with decent 5.1 sound) it is probably years away.

    I just signed up for Netflix 40 days ago (yes, my free trial just ended).  I started with 1 disc (DVD + Bluray) plus streaming.  I've been a long time user of Blockbuster movies by Mail.  I was days away of dropping Blockbuster and moving to Netflix for streaming and discs.

    Given Netflix's apparently hostility towards discs, I think I'll stick with them for streaming only, and stick with Blockbuster for my DVD and Blu-ray fix.  It is $2.00 more a month (assuming you want Bluray at Netflix – it is included at BB), but you don't have the 28 day penalty for new movies, and their catalog is a little deeper than Netflix's.  Also – I find their web site and queue management better than the Netflix system too.

    My question remains — should I stick with the 3 out at a time, (which I get for the 2 out at a time price since I've been there so long) or drop to 1 out at a time…)  I don't really watch too many DVDs these days.

    Redbox doesn't work for me since we rarely watch a movie in one day.  Also, the Redflix inventory doesn't have half of what is in my BB or Netflix disc queue.  Now if iTunes would let me keep a rental movie for 4 days, then I might have to reconsider…

  6. Daniel Fiore on July 15, 2011 at 3:35 pm

    Unfortunately, Netflix's streaming only library lacks so much it isn't worth it stand alone. And since, at most, I get 3 DVDs by mail per month, the pricing on the DVD rentals is higher than renting locally. So… it's now not worth it to stick with Netflix. I'll put the money toward renting the DVDs from Redbox and my local rental store.

  7. Co-Owner Mike Kane on July 28, 2011 at 3:41 pm

    Point is, Netflix offers an incredible service.  Yes, they need to beef up their streamed offerings, but an increase of a few dollars shouldn't make or break anyones budget.  If they have the titles desired, there is no reason to leave the company.  I think we should stop focusing on the 60% and realize that it's just a few bucks.

  8. Brooklyn Bridges on September 26, 2011 at 11:48 am

    I don’t
    like how Netflix is removing services and hiking up the prices, I definitely
    don’t think that’s fair at all!  I’ve
    been looking around and I found another alternative to Netflix and now that
    DISH Network has teamed with Blockbuster, they have a bunch of cool offers
    that are available to New and existing DISH Network customers as well as
    non-DISH customers.  Blockbuster has
    the most extensive library of movies, games and TV shows and you can get
    thousands of On-Demand titles straight to your PC or TV!  Customers will also have access to over
    100,000 movies, TV shows and games by mail with new releases coming out
    before Netflix and Redbox.  You can
    exchange them inside a Blockbuster store and even get Blu-Rays at no
    additional price.  The best thing about
    this new offer is that you won’t find these titles on DIRECTV Cinema or
    Comcast on Demand and everything is combined onto one bill!  I actually work at DISH Network and I’ve
    been wanting to tell people about this for a long time and I want everyone to
    check it out! 


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