Netflix Raising Prices 60 Percent

Netflix will charge $7.99 for streaming video; it's now a $2 add-on.

Netflix has announced a 60 percent price increase for those of us who were DVD-by-mail customers paying for unlimited streaming. Not surprisingly, customers aren’t happy.

PC World (“Netflix to Raise Monthly Prices by as Much as 60 Percent“):

Want more evidence that Netflix is refocusing its business on streaming media? Look no further than Tuesday’s announcement that it would separate streaming media and DVD plans. This change results in a 60 percent rate increase for many.

Whereas subscribers could formerly stream an unlimited amount of content and have one DVD out at a time for $9.99 per month, the cost would now be $15.98 per month. Each option would be charged at a rate of $7.99 individually.

If subscribers wish to have a second DVD out simultaneously, the rate increases to $11.99 per month, or $19.98 when combined with streaming. Current members would see the increase beginning on September 1 unless they take action, while new members would pay the increased price immediately.

Netflix explains (“Netflix Introduces New Plans and Announces Price Changes“) via its blog:

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering. Reflecting our confidence that DVDs by mail is a long-term business for us, we are also establishing a separate and distinct management team solely focused on DVDs by mail, led by Andy Rendich, our Chief Service and Operations Officer and an 11 year veteran of Netflix.

Now we offer a choice: Unlimited Streaming for $7.99 a month, Unlimited DVDs for $7.99 a month, or both for $15.98 a month ($7.99 + $7.99). We think $7.99 is a terrific value for our unlimited streaming plan and $7.99 a terrific value for our unlimited DVD plan. We hope one, or both, of these plans makes sense for our members and their entertainment needs.

So, for those willing to go streaming-only, this is actually a price reduction. The problem, however, as a slew of commenters point out, relatively little content is available via streaming. And it’s odd, indeed, not to offer a package discount to customers signing up for both plans.

PC World (“Netflix Users Protest Proposed Price Increases With Social Media Firestorm“) dramatizes the reaction:

Netflix users weren’t too happy to receive the news.

Users left nearly 3,000 posts on the Netflix blog as of 6 p.m. Tuesday and around 10,000 comments on the company’s Facebook page. Commentors accused Netflix of being greedy and alleged it was trying to “choke more change” out of its customers. Others suggested refreshing the streaming content to justify the price change. Others said they would be leaving Netflix.

[…]

It’s clear by the social media outrage that Netflix has some thinking to do about its new pricing structure. With thousands of customers upset and many threatening to leave, it might be in the best interest of Netflix to offer a bundle deal for those that want DVDs by mail as well as instant streaming. If the company doesn’t offer that or something similar, it may have a mass exodus on its hands come September 1 when the new pricing kicks in for current members. New subscribers already will pay the price–unless Netflix blinks.

Felix Salmon (“Did Netflix just kill its long-tail model?“) thinks this will radically change the game:

Back in 2009, Chris Anderson posted this chart, showing how Netflix’s consumers were embracing the long tail of its offerings. As the number of movies in Netflix’s library grew from 4,500 to 18,000, the top 500 movies in the library went from constituting more than 70% of demand to less than 50% of demand.

This is the wonderful thing about online retailers: they can offer vastly more inventory than their local-store counterparts. And this is the wonderful thing, too, about Netflix streaming, at least as it existed until today. The big problem with Netflix, for many of us, before streaming came along, was always that we would stock up on highbrow ambitious fare which we knew we really ought to see, and then not be in the mood for something highbrow and ambitious when finally we had some spare time to watch a movie. With streaming, you could get the best of both worlds: a selection of fabulous rare DVDs, and instant access to something popular and brainless should you be so inclined.

Those days, however, are now over. You can buy the DVDs-by-mail service, or you can buy the online-streaming service, but to get them both you have to buy them separately: Netflix won’t give you even a single penny discount for getting both together rather than one or the other. In unscientific polls, more than a third of subscribers say they’re going to cancel; I doubt that anywhere near that many will follow through on that threat, but the fact is that Netflix offers much worse value going forward than it has done up until now. Streaming is great, but the selection is still extremely limited, and sometimes it doesn’t work at all for people with spotty internet connections. Having a few DVDs in familiar red envelopes was quite lovely, just in case there were problems with the internet, or you were about to go on a long journey with a laptop, or you needed to watch something only available at the end of Netflix’s long tail.

In shoving people out of their DVDs-by-mail schemes and into the streaming-only option, Netflix is reversing the trend seen in Anderson’s chart: the proportion of demand accounted for by its top 500 titles is almost certainly going to reach new all-time highs. At the margin, this move might well help encourage movie studios to allow their long-tail films to be available for streaming, but that process is going to take a long time and we might never have as much inventory available for streaming as we currently do in the DVD store.

Theoretically, of course, the long-tail model works even better with streaming than it does with physical DVDs, since all the physical problems associated with finding and managing the inventory of pieces of plastic go away, and filmmakers can upload their films for streaming even if they don’t have a DVD distribution model. But it’s going to take many years to get there, and in the mean time I think it would make sense for Netflix to allow its streaming customers to take out on physical DVDs any titles which aren’t available for streaming. That might give Netflix a bit less of a bully pulpit when it comes to negotiations with studios. But it would be much more consumer-friendly.

In all honesty, while I find the price hike annoying, we’re unlikely to drop our service. We’ve gone down to having only 2 discs out at a time, since having two young children in the house means very little time for watching movies. Indeed, we mostly use Netflix to watch old television shows now. (We rarely start watching a new series until it has been on the air two or three seasons, allowing us to watch a couple dozen episodes at a rapid pace before catching up.)

Charging the same price for streaming as for video delivery is baffling, in that the latter is much more labor intensive and has to cost the company more to deliver. And, presumably, everything that’s available for mail delivery is available for streaming, whereas the reverse is decidedly not true. But I’ve paid $8 for a pint of beer at a restaurant; it’s just not enough of a hit that I’d give up the inconvenience over principle.

Several commenters note the brazeness of hiking prices during a steep economic downturn. (It’s true that the recession technically ended more than a year ago. But the economy remains a mess.) Then again, $15.98 a month for unlimited video entertainment may be just the ticket in hard times, since taking the family out for just one two hour movie would cost more.

FILED UNDER: Economics and Business, Science & Technology
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Franklin says:

    I hadn’t actually signed up yet (I was just about to do it through my PlayStation before their security problem began), but Netflix is currently an incredible deal. The changes will merely make it a great deal, IMHO.

  2. Herb says:

    My Netflix account replaced my satellite package a couple years ago. I’ve been getting a good deal ever since and, even at the increased prices, will still be saving over half of what I paid Dish.

    If much of the price increase will go towards landing better streaming options, I’m glad to pay it.

  3. sam says:

    @JJ

    So, for those willing to go streaming-only, this is actually a price reduction.

    Same for 1 disc (+bluray) only folks like us. My monthly went down $2.

  4. Vast Variety says:

    I’m not real thrilled with the price changes but I’m unlikely to change my service. Because of Netflix the only time I turn on my TV anymore is for about an hour and half or so in the morning to catch the local news as I’m getting ready for work. I’ve all ready dropped most of my cable service and just run the basic channels.

  5. James Joyner says:

    @Herb and @Vast Variety: Given my willingness to time shift normal entertainment programming, I could certainly justify dumping DirecTV and just watching them via Netflix/Roku/Hulu.

    The problem for me is the same it is for most: Live sports. The monthly bill isn’t high enough that I’d be willing to forgo seeing the several dozen games a year I want to see in the comfort of my living room and 60 inch screen. Since we can easily afford the satellite package without making significant sacrifices, watching them on my computer, let alone my iPhone, isn’t an acceptable substitute.

  6. Herb says:

    @James Joyner: The live sports is definitely a demand the internet TV market needs to fulfill and in the coming years, I suspect they will.

    Thankfully the sport I’m most interested in, football, is still available on local channels, although I do go through long NBA droughts since much of that is on basic cable. However, this year I was able to get a package directly from the NBA on my Roku box that while, not perfect*, allowed me to watch games (in HD even!) I wouldn’t have been able to watch otherwise.

    (* Blackouts…grrr.)

  7. OzarkHillbilly says:

    The problem for me is the same it is for most: Live sports.

    I have been living w/o TV for about 8 years. Not only do I save a whole lot of money, I am far more productive with my free time. I do miss being able to sit back and watch a game tho. If there is a game I just have to see, I’ll go to one of the watering holes in town. A little expensive but still far cheaper than sattelite.

  8. OzarkHillbilly says:

    I should clarify that we have a tv and netflix but no “TV”..

  9. sam says:

    Speaking of things TV and such, I just feel the overpowering need to share this Youtube I stumbled on. It’s from a Japanese production of Prince Igor by Borodin, The Polovtisian Dances. Take a few minutes off from all the bullshit re debt ceilings and the other madnesses and just enjoy an extraordinary, beautiful performance.

  10. Chad S says:

    I pay 12 a month for streaming/dvd service. When the change happen, I’ll switch to streaming only for 7.99 a month….whats the problem here?

  11. Vast Variety says:

    @James Joyner: Does you TV have a Computer input? My doesn’t at the moment but when I do finally replace my now 10 year old TV I’m definitely going to get one with a computer input. Then I’ll be able to set up the docking station for my Dell Inspiration duo right next to the TV and watch that way.

    I’m not really a sports fan so I don’t have to worry about live games but that is definitely something that streaming will have to catch up on. When teams and franchises find out that they can earn more money by direct streaming events you’ll see them make changes.

  12. Ron Beasley says:

    I am hearing impaired and need CC or English subtitles so streaming doesn’t work for me. My 3 DVD package actually goes down $4.00 a month since I no longer pay for a service I can’t use.

  13. James Joyner says:

    @Ron Beasley: Interesting. I thought streaming was an optional add-on under the old system. (My wife has handled the account, so I really hadn’t paid attention.)

  14. Ron Beasley says:

    @James Joyner: It was a non optional add on @ $2.00 a month so I will be saving $2.00 not the 4 I indicated above. It is a good deal for those who use one or the other – not so good for those who use both which may now be a majority.

  15. walt moffett says:

    Another problem to ponder is that many ISP’s are moving towards metering or otherwise limiting bandwidth (e.g. ATT) which could make the whole streaming business messy.