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Why Netflix Had To Raise Its Prices
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?"
My cable company wants much more than $16/mo to get the various premium channels (HBO, Showtime, etc.). $16/mo is a good deal to be able to watch what you want, when you want.
"National Security is the chief cause of national insecurity." - Celine's First Law
The Pirate Bay.
I find plenty to do without going to first run movies or event renting movies.
To be brutally frank with you, much of what comes out of 'the industry' these days have very little to keep me engaged.
So, I take the money I save by not subscribing to movies and tv and engage in hobbies that keep me engaged and creative, such as these at http://www.allyn.com/
Most Respectfully Yours Mark Allyn Bellingham, Washington
It's not even the all at once, IMHO.
It's the "you're getting better value with us raising the prices and nothing additional being added" spin they tried to put on it.
When their licensing costs from the studios went from 180Million to 1.8Billion over the course of two years... what did you really expect? How much more gradual could it be?
There are 10 types of people in the world. Those that understand this sig, and those that beat up people who do.
I don't really care *why* the price is almost doubling for my plan from what I was paying last year, only that it is. And like TONS of customers, I am going to drop half of the plan. The half I am choosing to drop will be the streaming. In my case, I am not worse off than before. My pricing will be about $1 less per month than when they added streaming in the first place.
Anyway, I can understand why many people are very unhappy about it. I can also understand why it makes sense to separate the plans and have customers pay for what they use (I am not a fan of "bundling" in the first place). However, I see that for many customers, this really is a HUGE and unreasonable price jump.
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.
This a thousand times. If they had said, "Our licensing fees are going through the roof, and this new pricing scheme will help us build an even better collection of streaming content," I would have been happy to pay a little more. Instead they told me how great it was that I was going to pay more for the same service, with no suggestion that an increase in available movies might accompany the hike.
Fuck 'em.
So now it's $50-60/mo on internet plus $16/mo for Netflix, $8/mo for Hulu Plus
I've recommended this to a couple families, and both told me they'd rather go back to dial-up than give up ESPN.
So the blurb here was all the information that was actually published in that article. Does a brief comment that adds no information actually need to be posted as a story? I thought they were going to put out some numbers. The article headline seems to be misleading in that there doesn't seem to be any actual content, unless I'm missing something.
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What increase was there in the cost of mailing DVDs?
The United States Postal Service raises its rates over time due to increases in motor fuel costs and labor costs.
You can all but guarantee the studios behind the licensing wrote in something to keep them from doing just that, no way they can appear to be the bad guys.
The "Netflix rate hike was inevitable" link goes to a paragraph of text that really doesn't say anything more about the subject than what's posted in the summary. I suppose there's a link there to an audio monologue on the subject, but who wants to spend 30-60 minutes listening to the audio just to see if they have anything more to say there?
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.
It wasn't a matter of the money it was the condescending latte comment and the outright lying about how this was good for the customer that really drove the revolt. Plus, the money isn't going to pay for increased licensing fees, they admitted that much. Which makes me wonder where the money is going seeing as bandwidth prices have been trending downward in recent years and their catalog is as well.
Personally, I'll probably move over the Blockbuster as they include games seeing as I'd have to pay for the streaming option at Netflix despite the terrible selection. I personally have no interest in rewarding a monopoly while I still have a alternatives.
Did you really think $9.99/mo for 1 DVD at a time + all the streaming content you can eat was going to last forever? Those are *startup* prices. They do that to grow the business, then they jack up the prices when they need to be profitable.
And they're never going to include new releases in the all-you-can-eat streaming at that price.
I do wish they would stop changing the streaming / not streaming status of movies, however. It's frustrating when a movie that has been out for ten years, and was streamable last week, suddenly is not streamable. Can't say I understand the reasoning behind that, other than that their licensing just makes no damn sense.
Hulu's increase of commercials has severely turned me off of their offerings. I once watched a ton of stuff on Hulu, but now I stick to NetFlix or just do without.
It's quite jarring to be in the middle of an intense show and then breaking to an HPV commercial.
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We're talking about streaming movies here... I suppose one could make the argument that they actually own X copies of the movie (where X is the number of active streams allowed). It seems more likely that they only have one digital copy that they use to stream to everyone who wants it.
There are 10 types of people in the world. Those that understand this sig, and those that beat up people who do.
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.
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 think they'd be celebrated if that's the reason and they were actually honest about it. The standard corporate practice is to insult your customers by giving them a line of bullshit, as though they were too stupid to read between the lines. They'd distinguish themselves from most other corporations by choosing to do otherwise.
It is a miracle that curiosity survives formal education. - Einstein
"Instead they told me how great it was that I was going to pay more"
Can you please show me where you see that in the linked page? Personally what jumps out to my eye is:
Netflix: "By offering our lowest prices ever, we hope to provide great value to our current and future DVDs by mail members."
ie This is great for the people who just want DVDs by mail.
Netflix: "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."
ie Letting people who are in it for the streaming get DVDs as well for just $2 isn't generally profitable for us, and people who only want the DVDs and aren't interested in the streaming don't appreciate having to pay $2 more for a service they don't want.
Netflix: "We think $7.99 is a terrific value for our unlimited streaming plan and $7.99 a terrific value for our unlimited DVD plan."
ie They think both plans are worth the price they're charging for them. (Well duh!)
So they did say it's great... if you're either Netflix or someone who only wants DVDs. If you're not in either of those categories then they didn't say it was great for you.
Yes they're obviously trying to spin it by focusing on the people who will pay less, but they're not actually saying what you're trying to spin it as.
This Space Intentionally Left Blank
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.
Gellenburg - I think you nailed it. What else is out there that provides the quality of signal, selection, or portability of view-able devices out there that is even remotely compatible? I'd pay triple to get access to even more content, like HBO and AMC shows, and new movies on DVD from Paramount, Universal, Dreamworks, 20th Century Fox etc.
:)
What is crazy is that the senior management of these companies can't see ---here we are SCREAMING --- LET ME PAY FOR UNLIMITED ACCESS TO http://entertainment.slashdot.org/story/11/07/21/2023219/Why-Netflix-Had-To-Raise-Its-Prices#YOUR CONTENT---HERE TAKE MY MONEY PLEASE!!!... and they would rather send me a subpoena from a RIAA lawyer. Oh the humanity!
Management is doing things right; leadership is doing the right things. - Peter F. Drucker
That's not in any way a useful figure. We'd need to know the licensing cost per subscriber and ideally net revenue per subscriber.
I do know that there's been little change in prices at the post office, little change in DVD retail prices and little change in salaries. It looks like it's the streaming subscriptions that are increasing in costs, yet they're doing nothing to encourage members to keep using them. I like many others I know only use the postal service for a handful of movies per month - usually older ones not available to stream. If I want a new release, I can get it from redbox for a dollar.
Please stop with this.
Any time something goes up in cost while reducing quality you get your Stockholm syndrome folks who whip out this line, parroting the company's marketing droids.
Have you noticed that the streaming titles have gone WAY down hill.
It used to be that there was a pile of new stuff every Tuesday. What was running on cable movie channels closely matched what was on Netflix streaming. Now you get dubious foreign films, 6.02x10^23 singing cowboy movies and maybe just maybe a B-F grade recent release. This month's was some Ashton Kutcher movie.. Which looks like it has already been pulled.
So they are offering more Anime, this is the only thing that has improved. Streaming is filled with affordable rights titles. Why are they affordable? almost NO ONE wants to see 90% of them.
Not to mention that it was quite a while ago that they decided to withhold DVDs through the mail until they had been on the shelves/PPV for 3 FREAKING months.
So as we watched a service we liked go into the toilet is is nice to have the "He only hits me because he loves me!" crowd crawl out of the wood work to say that the price increase for this reduction in quality "Is less than a small latte from Starbucks!".
As long as there are people who parrot the marketing droids or just sit back and take it, this will keep happening.
As the MPAA/RIAA/MAFIAA intend to kill any goose who lays golden eggs unless they get 100-150% of the eggs, it may be time for me to learn to torrent.
They did exactly what you describe. They lowered the DVD by mail prices by $2 and increased the price of streaming to $8.
Nerd rage is the funniest rage.
So, Netflix sucks at contract negotiations and they expect us to "just understand"? If people choose to continue their subscription, that is their right. I, for one, will not do business with a company that cannot successfully negotiate a contract that is beneficial to the customer base.
If Netflix had raised their prices by 60% in, say, their third year of existence (2000) and *then* not raised prices for ten years, then you'd have a valid comparison.
...the future crusty old bastards are already drinking the Kool-Aid.
I, however, am highly entertained by paradoxes.
Humans are terrible replicators of Godly things.
You haven't dealt with Hollywood, have you?
That's not at all what they're doing. They have separate streaming licenses, since you're obviously making a copy when you stream (i.e. copyright infringement).
There *is* a company doing what you're referring to, Zediva, and there are already suits & countersuits going on.
Back in the 1980s and 1990s studios priced home video product at two levels "Rental" and "Sell Through". If it was a title that the studio thought would sell millions of units (like an animated film) they priced the video tape at a sell through rate of $16 to $40. That would ensure consumers would go into Walmart and purchase it. However, if the studio thought the number of consumers who would purchase a title was limited to the thousands, then they priced the video at $80 to $99 so that they could make all of their money from video stores purchasing tens of thousands of copies to rent out. There are a number of reasons this pricing practice stopped, including the rise of Blockbuster Video (with whom some studios received a cut of the revenue) and the adoption of DVDs.
Netflix has zero negotiating power with digital streaming. They have negotiating power with DVDs because retail prices give them a BATNA.
The studios will raise their prices until subscribers * price is maximized. Then they will raise it a little bit more and take away Netflix's profit. If they give up their DVD mailing service then they are walking dead.
Blockbuster is dead because they didn't do the retail BATNA. They got in bed with the content owners and those owners ****ed them (in bed).
Never do a business where you have a single provided of your supplies if you want to make any profit.
I don't know why this is modded funny, it's exactly what cane to mind when the news broke. When the price went up I switched to streaming only (Yes, i know that's exactly what Netflix wanted!) + TPB goodbye physical disks!
I don't need a video streaming business. That's what bittorrent and massive amount of disk is for.
are data caps that will essentially kill Netflix streaming by adding a massive 'overage' fee by exceeding the limits. And of course, the nut-less FCC will do absolutely nothing in response.
Empty Threats? Do you have any statistics to back that statement up?
I for one am a Netflix subscriber that used to be 5 DVD a month - when they had that plan. But I have downgraded 3 times. First when they started throttling movies and I wasn't get my DVD's in a reasonable time. Then I was at 3 a month. I dropped to 2 a month when they pulled the Blu-Ray "bait and switch" and started charging more for Blu-Rays.
Now this. So I dropped them to streaming only and I am considering canceling.
I don't think its empty threats. A lot of us have been with Netflix for a while and we have long memories. Each time the Netflix Management pulls one of these stunts, some of us cancel and some of us downgrade.
I came very close to canceling this time.
And its not about the money, its about being treated like a "customer" and not a "moran".
I think they really f'd it up this time and I think a lot of those threats of cancellation were not idle.
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.
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