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The Netflix price hike for streaming-plus-DVD service goes into effect today for existing customers. For many consumers, Netflix just became a less compelling bargain even if Wall Street is loving this +60% gouging. The company abandoned its cheapo $9.99 a month plan that enabled subscribers to watch unlimited video streams and also have one DVD out at a time sent via mail. Interesting how the share price isn’t factoring in how badly Netflix underestimated the consumer backlash manifested by confusion and anger that followed the price hike. Guesstimates are Netflix could lose 2.5 million subs, including those most profitable customers who pay the monthly fee for DVD rentals but don’t bother to order many discs. Subscribers could bail to rent DVDs from Redbox’s $1-a-night kiosks or even rival Blockbuster which pounced on the Netflix PR problem to launch a nationwide promotion for existing Netflix customers who switch before September 15th. But the sad truth is that Netflix will probably come out ahead: the company makes a much higher profit from streaming than it does from DVD rental, and analysts have concluded that “a very high number of subs” would have to exit Netflix to offset the pricing increase.
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Higher profit from streaming?
I put together a business plan for a streaming company last year, and from my calculations, Netflix is most likely barely making money with their streaming business.
Netflix pays about 5 cents per hour for its streaming costs. If the average user streams 3-4 hours a day, that’s roughly 5 dollars a month. Factor in content licensing fees and overhead… I’m hard pressed to see where the profit margin is.
The average user isn’t streaming anything like 3 or 4 hours per day. The hardcore hi-pot consumer, maybe. But I bet the average streaming subscriber is watching three or four movies per month.
There’s a huge generational difference going on here. Baby boomers are probably only venturing out of their comfort zone to stream 3 or 4 movies a month (and only the ones who can figure out how to use their computer past solitaire and minesweeper). Gen Y’ers and Millenials are streaming FAR more than that and it won’t be long before their dollars are the target for this market. It blows my mind how many times I recommend to someone older than myself that they watch something on Netflix streaming and they look at me like I’m from Saturn. If they have Netflix they’re already paying for it and yet they have no idea how it works.
FIGURE OUT YOUR COMPUTERS, BABY BOOMERS. They aren’t going anywhere and all your excuses for not educating yourself make you sound lazy and entitled (which is, ironically, what you think of my generation).
Ok, lot of lameness here from you, millenial. the real problem w streaming is their catalogue blows. NONE of the new movies are on it. so don’t pick on the old farts, it’s some of us too, and it’s because netflix is trying to force us to have both of their subscriptions now.
so go yell about netflix, not seniors.
Smug asshole. Boomers (of which I am one), know way more about computers than using them for minesweeper and solitaire. I’ve been known to download movies from pirated sites, something my 21 y/o can’t do.
I would have dumped my DVD sub long before this, but not everything I want to see is even available on the stream. And until it is, I’m reluctantly forced to keep my sub going, along with paying for the stream.
And yes, you’re both lazy and entitled. When are you getting up off your parents’ couch and getting a real job? Ya know, one that would actually pay you enough so that you can pay rent?
This is not true. I know about twenty people who have Netflix streaming service and there kids stream during the day also in the evening the adults stream so they average about four to five times a week. For me I stream about every other day. I’m disable and watch alot of movies and tv. I could not believe it this week when I found Blitz a new release available on streaming. I also have Blockbusters blu-ray by mail service and they have a very long wait for that movie. I think you don’t realize how popular streaming has gotten since the price increase announcement…
Except that there’s no way the average user streams 3-4 hours a day. Only a college student would have that much free time. Is that why you made this alleged business plan last year?
It’s not an “alleged” business plan. It’s real. This number is used frequently in discussions of streaming media services as an average. Remember, Netfix allows streaming to 2 devices. This amounts to 1 film a day per device. I’m sure some watch more and some watch less.
Obviously no one is watching 3-4 hours EVERY SINGLE day. Plus most of us don’t even order very many discs
I’m a netflix subscriber and the hike didn’t bother me at all.
Same here. It went from ten bucks to sixteen bucks. Still a bargain for what you get. Certainly a much better bargain that what the cable and satellite companies are offering. WTF do people want for sixteen bucks a month?
The new pricing has been in effect for a while. My last bill (for August 5th-September 5th) for streaming + one-at-a-time bluray was $19.58. The month before was $11.03 for the same. Bluray not worth it at all since their bullshit spat with Criterion.
Too bad Hulu+ sucks for movies aside from the Criterion channel.
I’ve already cut back to “streaming only”. Less money for a greedy Netflix, in a time when rental prices are dropping faster than Justin Bieber’s career. Shame, that. (Netflix, not Bieber.)
That’s an oversimplification of the issue, like most of the reporting on this has been. Only the absolute lowest plans have been a 60% increase and it equates to a $5 – $7 dollar increase; for the average Netflix user (who was on the 3 at a time w/streaming plan), the price change was $4 and the percent increase was 20%. That dollar amount and percentage increase dropped lower and lower as your plan increases; 6 at a time and higher plans actually went DOWN in price.
Most 1 and 2 at a time users, where the price increase was highest, didn’t use the streaming; those that did at that low generally just had the streaming-only option. Those people who don’t use the streaming now have the option to drop the service and just get the DVDs and pay less than the originally did. It’s more options for the consumer and it makes far more sense now. People who want it all pay more; people who want less pay less. Makes sense to me.
I used the unlimited streaming with the 1 DVD at a Time option. I used both heavily, but just didn’t want to pay $20 on top of a huge cable bill with premium subscriptions and digital cable. I’m paying about $215 a month now with cable, internet, and Netflix. It’s really not that $20 a month is too much for a Netflix subscription, especially if used instead of cable… but with cable, it is getting a bit ridiculous. If I weren’t in the entertainment industry, I doubt I’d be willing to pay this much of my monthly income for home entertainment.
Wow, that worked out just like anyone who knows anything about business said it would.
Strange.
“They have to lose a lot of subs” to have an impact. Well, I’m one of them. Let the counting begin.
Why? There’s a better content option out there? The extra $5 a month is a massive difference in your life?
I just think this is a joke. People love shit to complain about – how dare a company raise it’s prices! this is unheard of! – but it’s barely going to make a dent long term.
Netflix is the video store for the next generation. By 2020 they’ll have a global sub base well past 100M. They’re a fucking monster. And they deserve it. They disrupted the norm and delivered a product to consumers that is significantly better than what was currently available. Well done.
Yes, the cost went up 60%, but that only amounts to a couple of dollars a month. Is “gouging” really the right word to describe it? Are we so entitled that we feel like it’s an affront to our wallets to be ~$20/month for unlimited DVD rentals and streaming content, we used to have to be upwards of $5/rental at Blockbuster?
I cancelled the streaming portion of my Netflix account. Its a nice add-on service but the movie selection is extremely weak. Sure I used it while I had it but I was watching stuff I really didnt care about. I have Netflix mostly to keep up with new releases and contrary to what they promoted they get very few top tier new releases due to high licensing fees. If you are a fan of very old movies, anime or have no other way to watch TV shows then its probably a good deal.
I have Netflix and I’m not thrilled to be paying more. However, I want Netflix to have the money bring more content to streaming and that means higher charges. I don’t think this is an outrageous price jump. I just hope Netflix will use the money to get more streaming rights. It they had everything streaming, I would never need the DVD’s shipped to me.
I only use the streaming portion of their service, this ultimately had very little effect on me.
That said I generally use it for TV stuff rather than movies, which as others have said are usually older and most are, frankly, not very good.
Bad movies isn’t Netflix’s fault. You can blame that one on Hollywood. The choices we have in theaters is just as bad.
While the price hike it bad especially in this economy I have no real problem with it. I rarely got DVDs and used Streaming at least a few hours a day. And if you still want DVDs you can get the streaming plus two DVDs out at a time for 20 bucks a month. That is still not bad.
so netflix wants to be the tbs/tcm/tvland of the streaming world? let them!
People will complain but when they actually look at what is out there they will see there really isn’t anything else. Wal-Mart owned Vudu, Blockbuster and Amazon push buying over renting and they all require you to rent “each” not all you can watch.
People may bitch and moan but in the end they will either pay more through netflix, get in their car and go to redbox and wait, or pay more through Amazon, Blockbuster, or Vudu. Even the new company that started this week is “each” through facebook and twitter.
Netflix has one thing going for it SIMPLICITY
Completely agree with you. What else is available like Netflix, nothing yet. HuLu plus has commercials (who wants that?) And like you wrote the others are pay per movie or VOD. Redbox has said that they will be adding streaming in the end of 2012 lets just wait and see. Monday I found a new release on streaming call Blitz. This movie was released three week ago. I don’t know how it found itself so fast on Netflix streaming service. I hope this will happen with Netflix more offen…
When I looked at my list of 200 DVDs in the queue and saw only 5 were Watch Now, I killed the streaming. I already get enough OnDemand choices from cable that this isn’t on my high priority list.
When I moved to my neighborhood in 2005, I had 5 Blockbusters within 5 miles of the house. They are all gone. It’s all RedBoxes. They’re everywhere.
I’m canceling, their streaming library is horrible
there is no way to sort by 5 star rating system,
why does any would want to watch less than 3 stars is beyond me
back to searching IMDB for top indie flicks and streaming for FREE
thanks for price gouging and ruining a great distribution method
all for short terms profits…
back to P2P and free streaming sites
you had my money, now you don’t
So a buisness raises prices a few bucks in order to maintain their business and you decide to steal instead? Nice. I can only hope one day you move out of your parent’s basement and get your dream job. I hope that dream job disappears because you can’t sell your product because of the product disappearing through theft.
Personally I think netflix is still a good deal for those that want to use it. To download content a la carte from other venues would run someone at least $2 for a TV episode and $4 for a film.
Personally I rarely used the streaming service because of the wifi problems that comes with living in the hills, so I canceled it. I don’t feel like I’m really missing anything.
I’m in it *because* of the streaming so the change is a great deal for me.
I cut out my DVD rentals and kept the streaming. But if a competitor comes along with a better offer, I’m there. Any goodwill I might have had toward the company is gone.
Yeah between family video and 25 redboxes nearby the new pricing makes netflix not so hot. A few years ago it was a no brained service to have now you have to question if you have no brain and keep paying for it.
They have a terrible list of movies available for streaming which is The Future. Actually, it’s The Now. Cancelled my account a week after I set it up. If they can’t grow the streaming list by 100-fold then this is a dead company walking.
I understand everyone justifying the increase, and wanting their movies, but at what point do the consumers say enough is enough!?
On principle alone EVERYONE should cancel their service and tank the stock.
dude, you’re an idiot.
I cancelled the streaming and went to 2 DVDs at a time. I turn them over as fast as possible, renting about 16-20 DVDs a month. Also, I never, ever return DVDs in the same envelope. With Netflix royally screwing their most loyal customers with a price hike, the least I can do is take pleasure in the fact that they actually lose money on customers like me.
Same here. But I return the DVDs in the correct envelopes. Why make life more difficult for the peons who have to sort the DVDs? At 16 or so DVDs a month, my per-DVD rental is well under $1. I’m a cheapskate but even for me, that’s a good price.
Sorry, I meant I never mail 2 or more DVDs in the same envelope. That saves Netflix postage. Always in their own envelope.
When they announced this new price gouging nonesense, I canceled the streaming portion of my Netflix account and went to 1 DVD only. The most ridiculous part about this whole thing is that they announced the price hike right after they lost the rights to a lot of their best movies and new releases, and now all they have left are B, C, D, and most frequently, F movies that no one cares about. Seriously, why should I suddenly have to pay double to be able to watch crap online?? What a way to reward long-time loyal customers like me. They are going to lose a LOT of money over this insult.