Whelp, Netflix…you have really screwed the pooch this time. Before I begin, let me start with facts and figures.
-Netflix in 2008 charged $8.99 to customer for a one DVD and unlimited streaming plan
-Netflix in 2010 charged $9.99 for the same thing.
-In 2011, Netflix offered a streaming only plan for $7.99 for an unlimited streaming only plan.
-Now, come September 2011, Netflix will charge $15.98 for the one DVD and unlimited streaming plan. The combo $9.99 plan will cease to exist. They are now going to be separated into $7.99 for a single DVD and $7.99 for unlimited streaming.
For preface on my past thoughts of Netflix, read this post I did a while ago. My thoughts currently, well…
When Netflix lifted their streaming restrictions in 2008, it became pretty much the most ubiquitous name over night in movie rental and content streaming. Once it was supported on hardware such as Blu-Rays players and the Xbox 360, it became a household name. Supposedly it has 23 million subscribers. If you base this on the law of averages and let’s pretend every has at least the $9.99 plan of one DVD and unlimited streaming (it honestly being the best deal), then that means Netflix makes about $230 million…a month. That’s a little under 2.76 BILLION DOLLARS ANUALLY, for what’s essentially a latchkey service. Add content to servers with movie studio approval for streaming and keep a somewhat supple supply of DVDs in a warehouse in one or two major cities per state. Oh, and stay on the USPS good side.
Now, I’m no idiot, I am sure there is more to it than that, and I know that those billions of dollars aren’t pure profit. I am sure when it comes to dealing with movies, there is a ton of overhead. Let me ask you this though, is there really so much overhead that Netflix has decided that it is a good idea to price hike their most popular and basic plan by 60%? What kind of sick battle plan is this? Wax out the competition and then jack up the price? This screams of a potential monopoly.
So, if Netflix decided to add more movies and shows to their streaming site, this wouldn’t be an issue. On the contrary, the benefit of the DVD and streaming plan is to supplement the somewhat small selection in the streaming library. So, let’s say Netflix is having trouble with the movie industry and getting content is costing too much. Ok, someone in their financial department must have said “Why don’t we just charge our customers more money so we can get more money to buy more content?” I am sure somebody said “Brilliant!” (I would actually hope not and that they gave this serious thought…). So, they announce the big bad plan hike. Well, turns out they might lose, according to CNET, thousands upon thousands of customers. Even if you don’t, let’s say some people are actually happy with streaming only and pay $7.99. That means the company just lost $2 in sale, permanently.
How in the world is this a good business practice? Cellphone companies have price hikes and plan changes every 2-3 years, and you know what placates their customer's? It's called "grandfathering your plan". In case you don't know what that means, it's this simple concept where the customer's under a current rate plan (say, the current DVD+ streaming $9.99 plan) get to keep that plan so long as they remain customers and NEVER EVER change their plan. The moment the want to change their plan in anyway, it invites them into having to switch to the current rates. All new customers and returning ones would be subjected to the new rates that you propose. THERE! DONE! This would keep your current, loyal clientele base from leaving in droves and would secure more money from new customers your service will inevitably attract. Telling every single customer, old, new and potential, that your service is getting more expensive with giving a really good reason is asking for some serious, company damaging lash-back.
From the other side of the coin, I could go on and on about how maybe the movie industry is really to blame and maybe Netflix isn't doing as well financially as first impressions would have me perceive, but at the end of the day, I am the consumer. These financial matters with the content dealers should not be a punishment towards me. Maybe Netflix should come out, snarky as hell, and say "We have to raise the price because Sony and Starz, etc are being jerks and demanding more money". If nothing else, what more damage could that possibly do. It would be actually refreshing to see a company say that the reason something is more expensive no is because the supplier is demanding more money.
You know, this wouldn't even be a problem if the streaming plan was even CLOSE to their DVD selection. As such, I have the ability to decide if this is still a good deal or not. As an Amazon Prime member, semi-consistent RedBox customer, and (for some reason) Dish Network service customer, I actually do have some semi attractive options open. but come September…it will be decision time.
Frankly, their business decision to change the pricing model doesnt bother me at all. This is how capitalism is supposed to work; they raise the price, we say no thank you by giving them less money. They as a service provider (a non-essential service provider btw) are trying to figure out how to maximize profits by trying to find out what appropriate pricing for the service is. By raising the price they are essentially asking their customers, en masse, "are you willing to pay this much for our service?" If we are, then they have priced it right. If not, we will throttle our service back and they will make less money off of us. As it is a non-essential service, like cable tv, if we think its priced too high, we will cut extra channels or service altogether, and theyll lose money on us. They arent a non-profit company, theyre in it to make money. Businesses shouldn't be expected to be run as a charity. They need to operate at a higher profit margin because thats how a company grows. Sorry if that rant seems angry, its not intended that way, i'm just typing this on my nookcolor so my punctuation is atrocious. I am a one dvd at a time netflix subscriber currently and i'll be rethinking it when the time comes.
ReplyDeleteAnd that time is Nigh, good sir. I agree it is totally non-essential and we as consumers have the right to say no. My question was, why would they try to piss off so many people almost all at once.
ReplyDeleteYou know... I don't know why they'd take the actions they did. From my perspective it would seem they realized that the DVD service was costing them more than $2 per month, as that was the cost to add it to your streaming service. Also, it's much more cost efficient for them to stream to us, no matter how many hours we use the streaming service in a month. And maybe perhaps they are really trying to make a push to get out of the DVD-by-mail business, because the profit margin is smaller than streaming. I'm sure their intent wasn't just to make people mad, but more to assess demand for their different services. They'll get to see what people do in reaction, and because of that, they can figure out what to focus their business on for the future. Who knows, maybe a LOT of people are going to drop the DVD service, such that they will adjust the pricing back down to a lower price? Perhaps unlikely, but who knows? It's a big business, and it makes business decisions, and most business decisions happen to increase profits and please investors. No doubt that is the reason why they did what they did.
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