As many of you know, Netflix is raising its rates:

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.

Their explanation is eminently reasonable. Indeed, I am seeing a lot of people on Twitter and the like defending Netflix to the hilt on this. “It’s still a great deal!”

And it is a great deal. And Netflix is not being unreasonable here. And I still question whether or not this is a good move. Why? Because the customers this is most likely to turn off are the high-margin ones. The people for whom this is a great deal are the ones most likely to utilize the service the most and cut into the profits. In the past, Netflix has been known to throttle heavy users on this basis. This was particularly true when it came to DVDs, where each disc transaction cost a lot. But it’s also true, to an extent, to streaming.

My father is on Netflix’s cheapest plan. He watches maybe one or two movies a month on disc, tops (some months he watches none). Then, maybe, a handful online. He is costing Netflix very, very little. And he is precisely the type of customer that this is going to turn off. My father is not a dramatic man. He may pay the piper, but it’s more likely that he will go without the discs or without service altogether. This, I’m pretty sure, will pass the “trivial expense” threshold where he has to start asking how much he’s using this service. This is precisely what Netflix does not want him asking. And the argument that “it’s cheaper than cable” holds no sway, because sports are on cable. And trying to explain Hulu+Netflix to Mom is not worth the effort.

So while Netflix remains a great deal for people that love entertainment (but not sports), and are computer-savvy (but don’t use BitTorrent), there are a lot of people that this does not describe. I doubt that it’s the case that 41% of customers are really going to drop Netflix, but it will be a non-trivial number. And some of their least expensive customers, at that.

On a humorous note, Blockbuster is reaching out to Netflix customers. Dissatisfied with Netflix’s prices? We’ll match them! Except we won’t offer streaming if you ever want to try it again, and if you ever cancel membership for a month, you’ll be back to our more expensive pricing.

Category: Theater

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7 Responses to On Netflix’s Price Hike

  1. Brandon Berg says:

    The sheer amount of righteous indignation from people who think that they’re entitled to the unilateral right to renew a month-to-month contract indefinitely with no change in terms is amazing.

    I find them annoying enough that I consider the monthly rate hike a small price to pay for their sweet, sweet tears.

    That said, I think you’re right. I’m actually thinking about cancelling or scaling back the disc-based portion of my subscription. Not because the price is too much, but because the e-mail that informed me of the price hike reminded me of how much I’m paying and how little I use it.

  2. Brandon Berg says:

    In extremely tangential news, I saw a sitcom couple (fat, bald man with much better-looking wife/girlfriend) tonight. And she was all over him, not just tolerating him. I couldn’t quite manage to shed enough tact to ask their friend what the deal was.

  3. trumwill says:

    The sheer amount of righteous indignation from people who think that they’re entitled to the unilateral right to renew a month-to-month contract indefinitely with no change in terms is amazing.

    During the whole Hulu Plus thing, I just shook my head at the notion that people felt they had a right to cable-grade material while bragging about how they don’t spend money on cable.

    My cousin is in such a romance. She seems more into him than he is into her. It’s weird. Perhaps a product of the confidence that comes with having been a successful athlete in high school and college, before letting himself go.

  4. Kirk says:

    Pffft! A lot of movies suck, anyway. I got about halfway through “The Invention of Lying,” before giving up.

    Now I’m going to have to watch “Human Centipede” just to cleanse my palate.

  5. A 4 says:

    This makes the free streaming from Amazon with a “prime account” look attractive. They seem to have a better streaming selection, and for $70 annually, free streaming plus free two day shipping. I’ve not yet tried it, though.

  6. trumwill says:

    Kirk, yeah, Invention isn’t your kind of movie.

    A4, You’ve convinced me to give Prime a closer look. The downside on streaming for Amazon is that, as of yet, there’s not as much third party device support (BluRay players, game consoles, etc.).

  7. A 4 says:

    Ah, well it turns out you can stream some things for free with a Prime account, but others still have a charge. I have not yet tried the streaming, to see how the quality looks on my tv.

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