Is Netflix's New Pricing Strategy Justified?

[Ivan Seeking]

We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.

Your current $11.99 a month membership for unlimited streaming and unlimited DVDs (including Blu-ray access) will be split into 2 distinct plans:

Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month
Plan 2: Unlimited DVDs (including Blu-ray), 1 out at-a-time (no streaming)
for $9.99 a month

Your price for getting both of these plans will be $17.98 a month ($7.99 + $9.99). You don't need to do anything to continue your memberships for both unlimited streaming and unlimited DVDs.

These prices will start for charges on or after September 1, 2011...

Wow, a single 50% bump for the same service! If they plan to shift to a purely online format and to phase out the DVD rentals, I can live with the transition. But if they play games with online availability to force DVD rentals, I may be forced to start Redboxing it. I don't care about the money but I won't be manipulated. I don't like the smell of this.

I would add that I tried Hulu Plus and saw no advantage over the free Hulu service. As near as I could tell, it's a scam.

 

[Pengwuino]

*stops tracking Netflix stock*

 

[ThomasT]

Wow, a single 50% bump for the same service! If they plan to shift to a purely online format and to phase out the DVD rentals, I can live with the transition. But if they play games with online availability to force DVD rentals, I may be forced to start Redboxing it. I don't care about the money but I won't be manipulated. I don't like the smell of this.

But they say "unlimited", which would make sense of the double fee if you take both, which is a different service that what they have been offering.

Streaming is so much easier -- for them too, hence the lower price for streaming only. Let's hope that it really does allow one to stream anything and everything in their inventory.

 

[Jimmy]

I only use the streaming service so I'm not overly concerned right now. Of course, it's difficult to predict how this will play out. One would suspect that DVDs will eventually be eliminated in favor of streaming, but I don't think that will happen anytime soon. Right now, streaming is just an extra service on top of their core business. If it were simply a question of the cost of shipping vs. bandwidth, it would be a no-brainer. However, you have to take into account their licensing fees for online content which varies from deal to deal. Right now, they can't afford the costs of licensing first-run content for streaming. What content will they be able to offer in the future? At what cost? How will competitive services affect things? I love Netflix, but how long will I be able to stream unlimited content for $8/month? How much will I be paying next year? What will I be able to watch? I'm very curious to see how things will go.

I would add that I tried Hulu Plus and saw no advantage over the free Hulu service. As near as I could tell, it's a scam.

Hulu Plus is a joke. It's Hulu, plus you get to give us your money.

 

[russ_watters]

My parents don't do streaming, so I think they'll see a nice drop in fee. My email calls for a small increase, and I'll have to decide if I want to drop down from 3 discs at a time. This is why it is improper to characterize it as a general price increase. They are restructuring their fees. So some will see an increase and others a decrease. I'm interested to see what the net effect of this will be (and for my cell phone bill with the death of unlimited data plans...).

It is also illogical to expect a company not to charge money for new services and silly to get angry when they do.

 

[Ivan Seeking]

But they say "unlimited", which would make sense of the double fee if you take both, which is a different service that what they have been offering.

Streaming is so much easier -- for them too, hence the lower price for streaming only. Let's hope that it really does allow one to stream anything and everything in their inventory.

I already have unlimited service. I get no new services for 150% of the price.

 

[Ivan Seeking]

It is also illogical to expect a company not to charge money for new services and silly to get angry when they do.

As usual, what are you talking about?

 

[russ_watters]

I already have unlimited service. I get no new services for 150% of the price.

You do realize that netflix hasnt always had streaming video, right? When they first started offering streaming movies, how much of a price increase did you see for that new service? Did you complain that they were undercharging you?

 

[Mech_Engineer]

I got the same email as you Ivan. I've got 1 Blu-Ray out at a time plus streaming so my price jumped up by a pretty significant amount. Still, I want to keep Blu-Ray rentals because they're amazing quality, and I want to keep streaming because we use it all the time...

It sucks it's getting more expensive, but it's still a lot cheaper than cable TV so I'm keeping it

 

[Jimmy]

It sucks it's getting more expensive, but it's still a lot cheaper than cable TV so I'm keeping it

I'm definitely getting my money's worth at $8.00. If that price doubled, I wouldn't like it but I'd still be getting a good deal compared to other services.

 

[Ivan Seeking]

I got the same email as you Ivan. I've got 1 Blu-Ray out at a time plus streaming so my price jumped up by a pretty significant amount. Still, I want to keep Blu-Ray rentals because they're amazing quality, and I want to keep streaming because we use it all the time...

It sucks it's getting more expensive, but it's still a lot cheaper than cable TV so I'm keeping it

True that Blu-Ray is great - at what, 780p I think, the streaming HD is relatively low resolution.

I have been somewhat disappointed in the number of older movies and shows that are only available for streaming for a limited period of time. I don't have a problem with the new stuff being DVD only, though I'd gladly pay a premium charge for streaming current releases, but what bothers me is the throttling of the online selection for older releases. Just give me what I want when I want it! I'll pay whatever it's worth. This is all about immediate gratification. In fact, given the choice between 780p streaming and BR, I'll take the streaming option almost every time, with rare exceptions.

Something else is that they often skip episodes for TV series. That is really annoying when you find something you really like.

 

[Norman]

My parents don't do streaming, so I think they'll see a nice drop in fee. My email calls for a small increase, and I'll have to decide if I want to drop down from 3 discs at a time. This is why it is improper to characterize it as a general price increase. They are restructuring their fees. So some will see an increase and others a decrease. I'm interested to see what the net effect of this will be (and for my cell phone bill with the death of unlimited data plans...).

It is also illogical to expect a company not to charge money for new services and silly to get angry when they do.

I also am on the 3 dvd plan - it is only a $4 increase I think, which I don't mind too much. From a purely numbers standpoint (and the one I see tossed around so much), the 9.99 to 15.99 jump looks the worst.

For my money, netflix is still the best value. I also have had Amazon Prime for a long time and they now include some movies and tv show streaming with that service. I should probably take a look at that again. Last I looked, they didn't have any where near the selection of streaming that Netflix has. It will be interesting as streaming content competitors emerge.

Netflix has for a long time been publicly saying that the mail service of DVD delivery is getting increasingly expensive. I think this is the main driving force behind the change in fee structure. Has anyone heard any justification for the restructure?

 

[dlgoff]

...I don't care about the money but I won't be manipulated. I don't like the smell of this...

So going back to DirecTV isn't an option?

If it is, $100 for you and $100 for me.

 

[wuliheron]

Streaming videos are used mostly by the poor and college students as a cheap alternative to cable. It has grown so popular in recent years and Netflix has expanded the number of movies they offer so dramatically the ISPs have begun seriously complaining about the additional load on their networks. It only makes sense that Netflix would now start to charge separately for the service knowing damned well the people who use it the most have few real alternatives and the rest couldn't care less.

 

[Ivan Seeking]

So going back to DirecTV isn't an option?

If it is, $100 for you and $100 for me.

The internet isn't quite ready for prime time yet. We still have Direct TV but I would love to see a DT.com streaming service. The problem I have is that I have to rebroadcast DTV up to the house from my office. There is no HD equipment available to do this. What I use, the only thing I could find, was actually developed for NASA, for the space station, and they don't have any orders from NASA for HD. So if we want HD it will have to be from online services.

As it is I've started using icons on the desktop as a channel selector [we have a dedicated TV computer]. PBS, Hulu, Netflix, links to specific shows that we're currently watching, and favorites like Meet the Press. That's almost as good as DTV but not quite yet.

The cool thing is that we can now get internet service up to 40 Mbs up and down. Only a short time ago we were limited to 1.8 Mbs.

 

[turbo]

I can't use streaming video. My DSL connection is so crappy and unreliable that I can barely watch a low-res YouTube video sometimes.

 

[Ben Niehoff]

Interesting...Netflix apparently didn't feel the need to actually send me an email about this at all, and yet when I check my billing under my account information, I see right there is a warning that the fee will increase to $15.99 on Sept 1.

I'm not sure what I will do about this. I don't watch a whole lot of movies, and part of the reason we went to Netflix is that if you watch maybe 3-4 movies a month, you've significantly beat the prices offered by local video rental places like Blockbuster and Hollywood Video. Now it looks like I will have to watch 4 movies just to match the price to rent 4 movies from Blockbuster. So there is no longer any price advantage, because I honestly can't imagine having the time to watch more than 4 movies in an average month.

The one advantage Netflix still has is that their DVDs always seem to be in good condition with no scratches, whereas we had a significant problem with scratched disks from local places, causing us to have to skip whole scenes of a movie. I know you can technically bring the movie back and ask for another copy, but that's a real bother, and usually ALL copies are scratched anyway.

 

[Evo]

Shouldn't streaming be a la carte? Why do you have to commit at all? Why not just pay per movie like cable on demand? Or is that an option with Netflix?

 

[Ivan Seeking]

Shouldn't streaming be a la carte? Why do you have to commit at all? Why not just pay per movie like cable on demand? Or is that an option with Netflix?

No, all streaming is available for a flat fee. And like I said, I would be glad to pay a premium charge for the few new movies we care about watching.

 

[Ivan Seeking]

I can't use streaming video. My DSL connection is so crappy and unreliable that I can barely watch a low-res YouTube video sometimes.

Have you tried Netflix? They are actually pretty forgiving and will spend a long time buffering if needed. We find it to be much more reliable than any other online service esp including You Tube. I've seen our service drop to a trickle due to server problems, and Netflix still worked. But you do need about 5 Mbs for their HD to kick in.

We ran Netflix on DSL for a couple of years.

 

[Ben Niehoff]

No, all streaming is available for a flat fee. And like I said, I would be glad to pay a premium charge for the few new movies we care about watching.

As long as that premium is a separate service, that's fine. I don't care about new movies and I haven't seen any movie in the last several years that impressed me in the slightest. Meanwhile I have a long list of classics that I still want to see, and Netflix has been a great way to do that cheaply.

 

[Greg Bernhardt]

As long as that premium is a separate service, that's fine. I don't care about new movies and I haven't seen any movie in the last several years that impressed me in the slightest. Meanwhile I have a long list of classics that I still want to see, and Netflix has been a great way to do that cheaply.

Agreed, there is a huge backlog of material to watch that I don't bother with the brand new stuff I missed when it was out in theaters.

 

[turbo]

Have you tried Netflix? They are actually pretty forgiving and will spend a long time buffering if needed. We find it to be much more reliable than any other online service esp including You Tube. I've seen our service drop to a trickle due to server problems, and Netflix still worked.

We ran Netflix on DSL for a couple of years.

I have 1.5 (hah!) Meg DSL that never gets close to that. I haven't bothered trying streaming Netflix because my internet connection is so horrible.

 

[Greg Bernhardt]

I have 1.5 (hah!) Meg DSL that never gets close to that. I haven't bothered trying streaming Netflix because my internet connection is so horrible.

You live in the woods, what do you expect

 

[turbo]

You live in the woods, what do you expect

Zooby is supposed to help me out with brush-based DSL options. He is NOT helping.

 

[Ivan Seeking]

Zooby is supposed to help me out with brush-based DSL options. He is NOT helping.

Just use brush-based wireless.
http://w5jgv.com/tree_antenna/index.htm

 

[dlgoff]

Dang. I feel lucky. I ordered the slow DSL service not long ago and it looks like I'm at 100 mbps, however I haven't tried any streaming movies.

 

[Dale]

I may be forced to start Redboxing it.

My wife and I already discussed it and we are going to do exactly that. We will keep the streaming, but the DVD's were never very good for us since our available time to watch is very sporadic and so we would hold disks for a week or more at a time.

 

[Evo]

Dang. I feel lucky. I ordered the slow DSL service not long ago and it looks like I'm at 100 mbps, however I haven't tried any streaming movies.

I'm telling, I'm telling! Give me more chickens or I'll turn you in!

 

[turbo]

When I first got DSL in our last town (the first person in town to get it), the ISP's owner couldn't figure out how to configure the DSLAM, so I was getting his full bandwidth on my single account. Man! the Internet was pretty fast then.

 

[rhody]

When I first got DSL in our last town (the first person in town to get it), the ISP's owner couldn't figure out how to configure the DSLAM, so I was getting his full bandwidth on my single account. Man! the Internet was pretty fast then.

I feel you pain turbo, that being said, I have a DVR at home and like to program the thing, then at my leisure watch then delete the movie once I am done with it. If a movie is really good, I will buy it on Blu Ray, if available. I am glad I never got hooked by Netflocks... hehe...

Rhody...

 

[Pengwuino]

http://www.fastcompany.com/1767124/dear-netflix-subscribers-stop-whining

Consumers are reacting to price increases on Netflix the same way Tea Partiers are likely to react if the government raises the debt ceiling. Hysteria over the new subscription plans is off the charts--news outlets have juiced up the story by highlighting the outrage of subscribers and referring to Netflix CEO Reed Hastings as Greed Hastings. (Clever.) On social media, the tone is of course overwhelmingly negative; droves and droves of people have taken to Facebook and Twitter to complain.

Two words of advice: Calm. Down. (Better yet: Stop. Whining.) Changes to Netflix's prices were inevitable, and frankly, not very painful.

Listen to the internets.

 

[russ_watters]

Shouldn't streaming be a la carte? Why do you have to commit at all? Why not just pay per movie like cable on demand? Or is that an option with Netflix?

Their business model for DVDs has always been "watch as many as you want", so I suspect they want to try to keep something similar for streaming. IIRC, the founder thought of the idea while at the gym - that's how gym memberships work.

 

[russ_watters]

My wife and I already discussed it and we are going to do exactly that [redbox]. We will keep the streaming, but the DVD's were never very good for us since our available time to watch is very sporadic and so we would hold disks for a week or more at a time.

Redbox's prices can't be beat (until you forget to return the movie, of course), but they have the worst selection possible and that's a dealbreaker for me.

 

[Ben Niehoff]

I feel you pain turbo, that being said, I have a DVR at home and like to program the thing, then at my leisure watch then delete the movie once I am done with it. If a movie is really good, I will buy it on Blu Ray, if available. I am glad I never got hooked by Netflocks... hehe...

So wait, not only do you subscribe to cable, but you also pay for premium movie channels so that you can record decent movies on your DVR. This scheme probably costs you over 6 times what Netflix will cost after the price hike in September. But feel free to take a smug attitude.

 

[Pengwuino]

So wait, not only do you subscribe to cable, but you also pay for premium movie channels so that you can record decent movies on your DVR. This scheme probably costs you over 6 times what Netflix will cost after the price hike in September. But feel free to take a smug attitude.

Yes! Let's not all forget that the entire reason everyone is on netflix is because they don't want to pay $40-$60 a month on top of their normal cable bills just to get the movie channels which, of course, don't offer new releases and only allow you to see a few movies typically at the provider's choosing.

People say they're going to quit netflix, but let's be honest, the deal you're getting with netflix is so unbeatable that if anyone does quit, they'll be back within a few months.

 

[Ben Niehoff]

Heh...I don't even subscribe to cable. Much cheaper that way.

 

[Greg Bernhardt]

People say they're going to quit netflix, but let's be honest, the deal you're getting with netflix is so unbeatable that if anyone does quit, they'll be back within a few months.

Yup! I haven't had any TV service for several years. Netflix is all I need and even with the increase it's still an awesome deal!

 

[dlgoff]

I'm telling, I'm telling! Give me more chickens or I'll turn you in!

They are all yours now.

 

[turbo]

Yup! I haven't had any TV service for several years. Netflix is all I need and even with the increase it's still an awesome deal!

When I had 1-2 disk Netflix, deliveries were OK. When I stepped up to higher levels they throttled the deliveries so that even if I watched every DVD as soon as it arrived and returned it in the next day's mail it would be days before the next DVD in my queue showed up. The people running Netflix are not dummies. They are crafty business-people who will willingly tweak to avoid providing all the service that they pretend to offer.

 

[Greg Bernhardt]

When I had 1-2 disk Netflix, deliveries were OK. When I stepped up to higher levels they throttled the deliveries so that even if I watched every DVD as soon as it arrived and returned it in the next day's mail it would be days before the next DVD in my queue showed up. The people running Netflix are not dummies. They are crafty business-people who will willingly tweak to avoid providing all the service that they pretend to offer.

I do streaming only :D

 

[turbo]

I do streaming only :D

Can you manage to get me broad-band coverage? I'd try streaming, too. Right now, I have "enhanced dial-up".

 

[Ivan Seeking]

People say they're going to quit netflix, but let's be honest, the deal you're getting with netflix is so unbeatable that if anyone does quit, they'll be back within a few months.

I wouldn't say that. With YouTube shows, Google Videos, Fancast, Hulu and other commercial services, not to mention the many stations that offer streaming, I don't see this as a static situation at all. Now more than ever customer choices can drive the industry the desired direction.

I was thrilled to see commercials on Hulu - hopefully free internet TV is just as viable as free broadcast TV. And I especially like their continuous play feature.

 

[Dale]

Redbox's prices can't be beat (until you forget to return the movie, of course), but they have the worst selection possible and that's a dealbreaker for me.

That is true, but I haven't been that excited about the selection of DVD's we have gotten from Netflix either. Of course, that could be because my wife is the one who always sets up the queue , but I think it is more that the "mood" I am in at the time has no impact on the DVD that Netflix sent me.

 

[Ivan Seeking]

That is true, but I haven't been that excited about the selection of DVD's we have gotten from Netflix either. Of course, that could be because my wife is the one who always sets up the queue , but I think it is more that the "mood" I am in at the time has no impact on the DVD that Netflix sent me.

It pays to do your homework. I have found many excellent back shelf movies but they take work to find. The pop junk is what usually comes up on the main pages.

One of my favorite recent discoveries was the PBS production of the Lathe of Heaven. But I watched that on Google Videos.

 

[Ivan Seeking]

It seems they really took a lot of heat over this, including a big drop in their stock value. This morning I received this email.

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

 

[Evo]

So, the only thing they're doing is changing the name of the DVD by mail.

A name. And this name does what to quell the disappointment some people have from the new pricing schemes?

 

[Ivan Seeking]

So, the only thing they're doing is changing the name of the DVD by mail.

A name. And this name does what to quell the disappointment some people have from the new pricing schemes?

I think he was just trying to explain the reasons for the change.

but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

It isn't surprising that they split the DVD and streaming services as the demands are very different.

 

[Ben Niehoff]

Actually, I think this is even more annoying. I liked having the DVD rentals and the streaming integrated into one website.

His strategy appears to be this: Rename and separate the things so that now we think we are paying twice as much for two things, rather than twice as much for the same thing.

Also, "Qwikster" is a stupid name. Can't marketers spell anything correctly anymore? Was "Quickster" not hip enough?

 

[FlexGunship]

So, the only thing they're doing is changing the name of the DVD by mail.

A name. And this name does what to quell the disappointment some people have from the new pricing schemes?

It isn't surprising that they split the DVD and streaming services as the demands are very different.

His strategy appears to be this: Rename and separate the things so that now we think we are paying twice as much for two things, rather than twice as much for the same thing.

I thought, in general, this was a fantastic move. I signed up for Netflix when they offered streaming services for the first time. Since then, I had NEVER ordered a single DVD. I don't even own a DVD player gosh darn-it (well, I have an XBox 360). Anyway, when they offered to cut my bill by $1, I was ecstatic. Does anyone even use the DVD service? I bet "Quickster" ("Qwikster?") closes up shop within the next few years.

EDIT: upon reading back, I see a few people still enjoy the DVD service. Rest assured, it will be obsolete soon enough, and everything you ever wanted to see in a physical media will be born-anew in the streaming service.