Netflix announced that they are changing their subscription plans to separate DVD subscriptions and streaming subscriptions. The net effect of this is a 33-60% increase (depending on the plan the consumer has) in the cost of their subscription prices for consumers if they decide to keep both their DVD and streaming subscriptions. Here are the numbers:
|Plan||Old Price (included streaming)||New DVD Plan Price||Total with Streaming||% Increase|
To say customers are unhappy about this is to be simply understated. This seems like a very short sighted increase by Netflix and will serve to only upset their very loyal customer base many of which are threatening to discontinue to their Netflix subscription altogether – but in the past had been huge advocates for the company.
One of Netflix’s biggest problems is how it set expectations to its customers. Consumers initially signed up for Netflix in order to get DVDs sent to them in the mail. The price was reasonable especially if you turn over the DVDs quickly – and there were a lot of choices not only in terms of plans, but the amount of content available was tremendous – much more than the brick and mortar video store. Netflix then added on streaming initially for free then for only a marginal increase for $2/month. This didn’t seem like much of an increase – even if you didn’t use the streaming service – but it was nice to have the option there and a lot of customers took advantage of the streaming service. Consumers got used to having the streaming content available along with their DVD subscription at this low price, so this large increase is a huge slap in the face to loyal customers who have been advocating the service for Netflix.
One point of frustration with the price increase is that there are no additional benefits to the new pricing structure for customers – unless you plan on cutting back, of course (which many will do – just look at the comments on the Netflix blog). Customers don’t get a discount by subscribing to both the DVD and streaming service (I’m thinking Netflix may re-think this move) and no additional content is made available for the higher price. All of this makes for a very unhappy customer base.
I can understand why Netflix separated out its DVD and streaming business from a pure business strategy point of view. Costs for licensing content for streaming are going up significantly as content owners have discovered how much content is being consumed (and will be consumed going forward as it is made more accessible) so they are demanding more money for their content. Netflix wants to license more and more content (especially popular content) and the only way to do this is to charge directly for the streaming content so they can earn more revenue (hopefully) so they can get more content for customers to watch. Additionally, there are more devices today that can display the streaming content (game consoles, Internet-connected TVs, Roku boxes, smart phones, etc.) so the content can be viewed in more and more places. Netflix and the content owners view this as more valuable to customers since the content is so easily accessible so they feel they can charge more. Unfortunately, customers have come to expect all of this without the higher or separate price. Customers like it when they get “free” content or the price gets lowered – not raised.
Netflix eventually wants streaming to become its core business. It’s a lot cheaper for them to deliver content over the Internet and it’s on demand, so it keeps customers happy and there are less logistics to handle. So far their streaming business has been very successful already bringing in millions of dollars but it pales in comparison to the DVD business. Customers like the variety of content available on the DVDs (which is significantly more than streaming) so until the same amount of content is available on streaming, many customers won’t switch to a pure a streaming subscription or perhaps subscribe at all.
I am not sure what I will personally do at this point with my Netflix subscription. I subscribe to 1 DVD out a time per month and I rarely stream content. I like having the option available, but I have yet to get an Internet-connected television (yes, I know, I’m in the business…one of these days) and I don’t like how the content looks through my Wii. I do occasionally watch on a PC or iPad, but that’s rare. If I do keep Netflix, it will just be the DVD plan and I’ll stream from Hulu or Fancast or some other site – there are other options. Lately, I have been getting TV-seasons on DVD, so Netflix has been worth it for that. If I start getting movies, I’m not sure Netflix will be necessary for me at all, since I can get movies from Redbox at a much cheaper price – especially since I don’t turnover DVDs that quickly. If Redbox had TV seasons, I’d probably just switch to that (perhaps this is an opportunity for Redbox?). I think as Redbox increases its variety that is going to be a viable option for me – and many others – while streaming content from other competitors to Netflix.
I do hope that Netflix figures this out. To date it has been a great company with a business model that really worked for consumers. I can only hope this change is a small glitch.