Netflix was once the best deal around. For just $9.99, users could go the traditional route and have DVDs dropped in their mailboxes in those signature flat red envelopes and they could have them streamed directly to their homes and watch them on their computers or through their television game consoles. Of course, customers needed both. Many films in the Netflix catalogue were available only on DVD and not streaming, but for $9.99 it was still worth it. Users had a chance to combine instant gratification with a chance to see the obscure art-house cult films they wanted for one “terrific” price.
A new plan splits the two options up and charges $7.99 each for DVD rental and streaming. The cost for both is now $15.98, a significant price increase. Anyone wanting to just rent the DVDs and forgo the streaming option will have to pay $11.99 for a maximum of two DVDs. Netflix Chief Service and Operations Officer Andy Rendich called this, “reflecting the underlying costs and offering our lowest prices ever for unlimited DVD.”
Those underlying costs have gone up, explains CNN. At one time, Netflix was the only show in town, unless you counted Blockbusters. Since then, however, other big players have gotten into the movie game, including Google, Amazon, Hulu, and even Facebook, which now offers a (very) limited selection of movies for rent.
It couldn’t come at a worse time. All of this is happening just as Netflix’s contracts with the original studios and content providers are scheduled to expire. According to analyst Michael Pachter, the $180 million in licensing fees that Netflix paid for content in 2010 could approach $2 billion by 2012. With more companies bidding, the price could go sky-high.
And it will. Some of those companies have already begun to throw their weight around, with Sony Pictures limiting the films that Netflix could stream. Netflix called this the result of, a temporary contract issue,” and consoled its subscribers with the announcement that even if they could no longer stream The Social Network, they would soon be able to stream Iron Man 2 and the first four seasons of Mad Men.
But that was last month, and negotiations are only getting more complicated. As ZDNet points out, “It’s all about the revenue, stupid.” They have to come up with $2 billion, and they put the onus of that on the consumer: “By unbundling DVD and streaming services, Netflix is reflecting its costs better. Unfortunately for customers a bundled plan is now 60 percent higher.”
Netflix believes that the benefits outweigh the risks. Larry Dignan of ZDNet is less confident of that. With so many other alternatives, including even cable packages, Netflix could lose part of its customer base, at least in the U.S.
Perhaps that’s why Netflix is expanding into 43 new countries, particularly in Latin America and the Caribbean. With 156 million Internet users and fewer streaming options, they could easily compensate for a dip in customers at home.
Then there is brand loyalty. Though the price has shot up, it is still a great deal, and competition with the other services will mean that either their prices are similarly high or that Netflix will be forced to lower its prices. Either way, existing subscribers have until September 1 to decide what to do. #DearNetflix may be trending on Twitter today, but there’s a fine line between twittering in displeasure and quittering in disdain.