The reason why Netflix decided to raise prices

Sections: Business News, DVD/DVR/Blu-ray, Video, Video Providers

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Netflix has been causing some bitter feelings lately among its customers. First Netflix redesigned its website much to the dismay of its users. Now they’ve dropped another bomb by announcing that it will eliminate the DVD rental and streaming combo subscription. Starting in September (for existing subscribers), customers who want both services will pay $15.98 a month. That’s an increase of about 60%. So why did Netflix decide to do this?

Basically, Netflix underestimated the power of its DVD business. A while ago, Netflix started to de-emphasize its DVD service in favor of its streaming service. It all made sense at the time. Netflix was installed on a ton of devices such as TVs, game consoles, smartphones, DVD players, Blu-ray players and more. Netflix also removed the “Add to DVD Queue” from some devices. Netflix figured streaming was the future and DVDs were old hat.

But now, Netflix realizes that customers still want DVDs in the mail without subscribing to its streaming service. So, Netflix created the unlimited DVD-only rental plan for $7.99 a month. Everyone is happy now right? Wrong. Under this new realization, Netflix believes it’s losing money by sticking to the old subscriptions.

The Netflix Blog states,”Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs.”

All the corporate mumbo jumbo boils down to this statement:

If some customers are willing to pay full price for DVDs, why shouldn’t all of them pay full price?

We now have to figure out if paying $7.99 a month for unlimited DVDs is worth it in combination to the streaming service. If you’re the type to rent a DVD from Netflix and keep it for weeks at a time, you’re better off dropping the plan. If you’re only going to rent one or two movies a month, you’re better off buying those movies used. Since you’re getting used movies from Netflix anyway, purchasing used movies may be a better option. You can find good DVD movies for under $5 if you know where to look.

The comments under the Netflix blog post that announced these changes are filled with unhappy customers. Netflix may get as many people dropping their DVD subscription as they get people who sign up for the DVD subscription service.

Via [Netflix]

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