Why Netflix Had To Raise Its Prices 574
sperlingreich writes "Last week, after movie streaming service Netflix raised its prices by 60%, the company's customers took to blogs and social networks in revolt, threatening to cancel their subscriptions. However, between the cost of mailing DVDs and paying increased licensing fees for content, a Netflix rate hike was inevitable. Is it still a great movie bargain? What alternative services are there?"
Re:The issue wasn't raising prices (Score:5, Interesting)
Re:Whiners... (Score:3, Interesting)
... How do you think they're going to get licensing for more movies (especially new releases) without raising more money to pay increased licensing fees?
How about FIRST improving their offering, and THEN raising the price? You know, good old 'investing'.
60%? Try 7% (Score:5, Interesting)
It's misleading to say that they raised their rates by 60%. They did I suppose if you only have the unlimited 1 DVD plan + streaming. Going by the outcry I suppose there's a lot of people who have it. However, my family has the 4 DVDs + streaming plan and the price will be going from $27.99 to $29.98 a month. That's less than a small latte from Starbucks.
Instead of screaming at Netflix and throwing tantrums comparing the price increases to rape (google it, it's really sad) I wish these people would start screaming at the media companies to get some sort of reasonable pricing and access to streaming media. This whole sending me physical pieces of plastic through the mail is getting old! It's 2011 for crying out loud! Not only is there a terribly small amount of things I can stream through Netflix, but things disappear, almost always with little warning. My streaming queue has over 200 titles that are in the saved section because they were available once but are now not.
I understand what's going on behind the scenes, but that doesn't mean I have to like it.
Poor Posting (Score:4, Interesting)
So at this point all we have is a vague argument that Netflix had to raise its prices because of the cost of mailing DVDs and increased licensing fees for streaming content. Let's dissect this:
Sending DVDs through the mail is what Netflix has always done. It is the core of its business. I haven't seen any news about a sudden hike in the cost of mail in the U.S. Yes, it's gone up over the last 20 years, but not since Netflix's last price increase about 7 months ago. Netflix is the postal service's life support. Without Netflix, the USPS isn't financially viable because so much written communication now takes place online, so the USPS is going to do whatever it takes to ensure Netflix doesn't send fewer DVDs through the mail. I consider this part of the argument debunked -- the cost of mailing DVDs did not force this price increase.
Netflix has progressively tried to steer customers away from the mail service, presumably because they don't have to maintain distribution centers around the country to stream videos, and they're worried someone else will beat them to the on-demand streaming party first. They want to own that party before the space gets crowded, and the easiest way for them to do that is to "convert" their huge base of snail mail customers to streaming. They started out by bundling it for free with your subscription, then offering it by itself, then disabling the ability to manage your DVD queue through the Netflix mobile apps...
The problem is that their streaming library is a fraction of the size of their DVD library. To fill in the gaps, they have to go back to the content owners and negotiate fees, and the content owners smell an opportunity to make a lot of money. Rather than use its size to convince the content owners that receiving a reasonable licensing fee for the content is better than receiving nothing at all and being left out, Netflix has decided it wants the content even if it has to overpay for it... Because it will just pass on the cost of its decision to the users. I'm sure someone at some high level meeting said, "wait, what if our customers realize this and flee?" and that's why they're providing the option to opt out of streaming altogether now. The customers who don't want to pay the increase can just opt out of streaming. The customers who are willing to pay the price for streaming will pad the pockets of the content owners.
Re:The issue wasn't raising prices (Score:4, Interesting)
Because unlike the copyright cartels, Netflix is actually trying to bring content to people the way people want to have it, in an online form where much of it is at their fingertips, without having to resort to piracy to achieve same? A legitimate service that's about as good as what the pirates enjoy is a good thing for everyone. It's something the cartels should be encouraging. If they had any sense at all or any ability to think beyond the next quarter, they'd remove as many obstacles as possible and become as easy to deal with as possible in order to help this happen.
That's fine and dandy, and I agree with you there. But the fact remains that they're simply not being easy to work with, and as they control the content, they get to make the rules, as stupid and stubborn as they're being about it.
Netflix is bringing them a lot of business they may not have enjoyed otherwise. That should be a decent bargaining position. If not, someone at Netflix needs to learn how to negotiate...
I have no data to confirm this, but I suspect that Netflix is actually taking away a lot of their traditional business (DVD sales, pay-per-view showings, etc). The studios gave Netflix great rates before under the impression that it would be an additional source of revenue, but now they're losing money on the deal and are jacking up the rates as their contracts expire.
I think they'd be celebrated if that's the reason and they were actually honest about it.
Probably, yes, but there's a chance that the money they'd lose to the angry studios would be greater than the money they'd gain from an increase in appreciative subscribers. Hell if I know if that's true or not though; hypotheticals were never my strong point.
I appreciate the real response though, unlike the AC above who decided to be pedantic about my wording.
Re:Yeah, sure you are... (Score:4, Interesting)
the company's customers took to blogs and social networks in revolt, making empty threats to cancel their subscriptions.
FTFY.
I love how media consumers like to bitch about every little price increase (not that this is a small increase with NetFlix) and then threaten to leave. Make your idle threats all you want. It's become a case of the Boy Who Cried Wolf to those of us who work in such industries. You have to start actually canceling and citing the price increase as the reason why if you want any of the suits to pay attention. Otherwise, you're just "normal subscriber churn" to them.
I terminated my subscription last night and filled out their post-cancellation questionnaire. There was no option to cite that their recent price hike was the specific reason I was canceling. There was also no comment box for me to fill out and state this as well. The closest option was "I need to cut costs," which is certainly not the case. I don't think they will get the message based on the available responses unfortunately.