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Home » Budgeting, Technology

Dissecting the Netflix Price Increases: Time to Cancel?

Last updated by on 9 Comments

Last week, Netflix announced price increases to customers, their second such move in the past year.

I covered the last Netflix price increase back in December when they raised prices from $8.99 to $9.99 for the unlimited, 1-at-a-time plan. A $1/month price increase, particularly at a time when shipping costs were increasing, seemed reasonable. And I doubt they lost many customers over the move.

This time around, I’m not so sure.

Netflix is no longer bundling it’s DVD-by-mail and unlimited streaming options.

Before the price increase, you were able to get unlimited, 1-at-a-time DVD’s and streaming for a combined $9.99.

You’ll now have to pay $7.99 for each separately – about a 60% increase over the old plan if you get both.

The silver lining is that if you never used streaming, you will now only pay $7.99 for the DVD plan (a $2 decrease). The streaming-only price stays the same at $7.99.

netflix price increase

From a Business Perspective…

I understand the desire for Netflix to want to separate the two services out from a revenue/profitability standpoint. They will make more money (if they don’t lose a significant amount of customers first). Investors agreed by bumping Netflix shares 3% after the announcement.

I decided to dig into Netflix’s annual report to find out why. One key to this puzzle can be found in the following statement:

Our business has and continues to evolve rapidly. In 2010, we passed a significant milestone with the majority of our subscribers viewing more of their TV shows and movies via streaming than by DVD. Going forward, we expect we will be primarily a global streaming business, with the added feature of DVDs-by-mail in the U.S.

My belief is that Netflix wants to separate the two completely so it can emphasize the streaming only option more to grow their subscriber base as it will undoubtedly lead to higher margins compared to DVD customers. I’m sure it costs much less to stream 4 movies a month than it does to buy, house, ship, and, return ship 4 DVD’s a month. This move is to push less profitable customers who were heavy users of the combined plan to one or the other plans (better yet, both).

It’s a margin game. That makes sense.

The Big But…

The problem I see is that Netflix’s streaming only option significantly lags behind when it comes to unique titles. If you want to stream last year’s summer blockbuster, you’re going to find it. If you want something a little more rare, you’re going to have to get the DVD shipped to you.

The lack of catalog is why most of their customers ended up in the streaming/1-a-month combo plan. And now Netflix will be charging those customers 60% more. And those customers are pissed (as evidenced by over 5,000 mostly outraged comments on their blog).

The danger in this move is that it might drive customers who wanted both DVD’s and streaming to find other options (i.e. the good ole’ library, Red Box, Blockbuster, Amazon, Hulu) or just cancel the service altogether.

My Personal Take on these Netflix Changes

Ultimately, I view any form of video entertainment as a luxury. Cable TV is a luxury, going out to the movies is a luxury, Netflix subscriptions are a luxury. This isn’t food, or fuel, or electricity, it’s video – and you have a choice.

If you don’t like the price increases, switch to one of the two plans or cancel altogether. If you select both, there’s really no room for complaint. It’s a luxury and having the choice of both DVD or streaming makes it even more of a luxury. As Netflix says in their statement: “members can easily choose to change or cancel their unlimited streaming plan, unlimited DVD plan”. You might be wise to take them up on that.

If you’re a Netflix customer, express your intentions in the following poll:

What will you do after the Netflix plan price changes?

View Results

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I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


9 Comments »
  • R S says:

    Oddly, to support Netflix, we upgraded our DSL package. Later, we needed the higher speeds for the home business, so we had to switch to fiber.
    With the fiber, they offered us a tv package which cost the same as Netflix’s new pricing (added to the fiber internet). Given the trouble we’ve had with DVD turn around time, and the fact the streaming selection between the fiber tv package & Netflix were comparable, we’ve now made the switch to fiber.

    We’ll re-evaluate in 2 years, when the promotional pricing ends.

  • Natalie says:

    I’ve frequently moved back and forth between just streaming and streaming plus 1 DVD. I loved the fact that if I wanted a particular show not available on streaming, I could upgrade for $2 and get a DVD or two. I agree it was under-priced as a $2 upgrade, but $7.99 for a single DVD is a 400% increase from my perspective. I will switch to just streaming again, but I’m not entirely pleased. I think they would have angered fewer people if they had a more reasonable price increase. I probably would have paid $4-5 per month to have 1 DVD add on to streaming without much complaint. Now, I won’t be paying them anything because I never watch more than two DVDs a month. I think it would be wise for them to give a discount to people who purchase both streaming and DVD services. I’m not sure why they are missing out on this opportunity. I hope they have a good reason.

    • G.E. Miller says:

      I know Netflix tried to spin the DVD’s as the $2 add on to streaming, but in reality, their cost structure was probably the exact opposite. Most of the cost was with the DVD’s and the streaming was a super cheap add-on for them.

  • Tariq @ Yes I Am Cheap says:

    Lately, we’ve been reading about Netflix almost everywhere. It’s a pain to read that Netflix has hiked its price. But then nothing can be done about that. You either live with it or gently pass.

  • Ron Ablang says:

    I was going to join Netflix for the DVD by mail only plan, but now I guess I’ll give Blockbuster.com a look-see just on principle. A 60% increase in these economic times is just crazy.

  • Jeff Walden says:

    An alternative view on why they changed the price structure: they did so to not have to renegotiate their contracts with major content providers:

    http://tumblr.hopelessgeek.com/post/7570822229/what-netflix-isnt-saying
    http://www.usatoday.com/tech/news/2011-07-14-netflix-why-the-price-hike_n.htm

    Netflix has plenty of competition these days: Amazon, Hulu, Redbox, Blockbuster stores and kiosks. I have little doubt their current contracts are a better deal for them than the movie studios want, or would negotiate with them now. I find the contractual rationale far more convincing than Netflix simply wanting to turn the screws and extract more revenue from its user base: I don’t think they could actually do it and make money.

    (In case you’re wondering, I don’t use Netflix or any other movie subscription/delivery service, and haven’t except for a very brief Netflix trial back in 2005. I doubt I’ve watched more than half a dozen rented/library-borrowed movies in the last year. Unless I changed my habits, which I’m wary of doing, it just wouldn’t pay off.)

  • Snapperhead says:

    I’ll be dropping the streaming option on my account before the price hike happens Sept. 1st. Almost everything in their streaming library is old. They only have deals to stream new releases with a few studios. I think the DVD by mail option is pretty archaic, but until they’re able to secure deals with most/all of the studios (which I think will have to happen at some point) that’s what I’ll be using.

  • IT Rush says:

    What the heck, do we have other options?

  • Mike says:

    I love seeing the Netflix banner ad on this post, ha. Seriously though, we’re only talking about a few dollar increase. The 60% figure is getting everyone all hot and bothered. The fact is, Netflix offers an incredible service, which is what we’re buying. Yes, the streamed offerings may be lacking, but the snail mail service is still impressive and worth it.

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