Netflix Price Increases and Their Reasoning

by on July 15, 2011

in consumer

NetflixAs many now know, Netflix has increased their subscription rates by quite a bit more than what most consumers are actually willing to accept or absorb.  Part of the price increase is because the cost of their DVD rental program was higher than anticipated because as surprising as it seems, more folks still want DVDs rather than streaming movies or TV series over the web.

Plus in some cases, the movies are available on DVD first before becoming available in streaming mode, so folks jump on that opportunity.

Thus, the huge price increases reflect adjustments for the costs of the DVD side of the business and to compensate for the business costs of streaming content, where the expected landslide of members did not show up.

The best package that includes both DVD and streaming, was around $10 and is now $16.  If you’re going to do the math, that’s an incredibly crazy cost increase of 60%.

This increase went out to new subscribers now and the present 23.6 million subscribers have until September before they get theirs.  That means that Netflix subscription income will jump from $236 million per month to $377 million per month for the company.  Or $2.8B annually to $4.5B.

Of course, as Netflix streams popular content, they have been getting much larger bills from the studios to be allowed to do such.  For example, the Sony/Starz issues that are ongoing right now, where Netflix is paying $30M a year to stream Starz, while industry experts are estimating that Sony will by trying to charge Netflix $200M when the present contract expires next year for the Starz content.

As it stands, Netflix want consumers to move towards the streaming business model, but I’m not sure that of the subscribers, just how many have the internet connection to support streaming or just dang outright want to stick to the technology they’re comfortable with.

Not to mention that Netflix is expanding out into its own original content.

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To be honest, I’m not sure how Netflix could have done this any differently.  They’ve kept prices at a certain level and consumers became accustomed to that.  To get smacked with a 60% increase is pretty shocking.  I’ve never invested or bought anything from anywhere who’s ever tried to stick me with that kind of increase.  Cripes, I moved out of an apartment complex in Sunnyvale some years back when they tried to screw me with a huge rent increase.

And if the studios are cranking up streaming or cable fees across the board, then they’re not doing too bad then, are they?  That’s for another day.

Now, if you will excuse me, I need to head out and go practice.  It will cost me $15 for an hour of bowling to practice…  weird how somethings can feel acceptable in one aspect and not right in others.

[MediaComToday]

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