Netflix Increases Subscription Price for Some Customers

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Publish date July 13, 2011 Views: 547 Comments: 40

My Facebook feed exploded the other day with news that Netflix was changing its pricing scheme. For some customers, those who subscribe to unlimited streaming and DVD plans, the new price would be a 50% increase. I subscribe to Netflix. A few months ago I re-instated my account to take advantage of the streaming-only option after canceling my account due to my lack of DVD receiving and watching. I will not be affected by the price change, but many of my friends will be.

The backlash, in terms of comments and threats, has been severe. Netflix released a press release stating that the reason for increasing the fee for certain customers was to better reflect the cost of doing business. Price changes are rarely about cost. More often they reflect market forces, like demand. Netflix has decided to increase the price because they have determined that they will profit more, despite the possible loss of customers that would come as a result as an increase that seems to be significant. With fewer legitimate competitors in the market, Netflix may feel they have some room to raise prices without fear of competition.

It still may be true that Netflix is experiencing an increase in cost. More customers are choosing the streaming option, now. Netflix needs to pay fees to distributors in order to receive streaming rights, and these are structured differently than DVD rental rights. These deals ensure production companies earn money to represent how a movie is viewed. Somewhere down the line, content creators, like writers, directors, and actors, receive royalties, and online viewing has only recently begun to be considered in that calculation.

Judging from an unscientific monitoring of feedback, many customers who currently have the unlimited streaming and DVD plan will switch to the unlimited streaming-only plan. Given the option of keeping their plan and paying more, reducing the plan and paying less, or canceling membership outright, that second choice seems to be popular. This may have been exactly what Netflix intended. While Netflix’s payments to distribution companies for streaming a movie or television show online might be higher than the payments for rights to rent out DVDs, sending, retrieving, and processing DVD rentals create overhead costs that make that type of service less profitable than streaming. This price change might be Netflix’s way to gently coax customers to switch away from DVD rentals towards streaming only.

If that is true, it is ironic that those most upset with Netflix’s pricing and public relations tactics are exhibiting the behavior most desired by the company. While customers may believe switching to a less expensive streaming-only plan will hurt Netflix, it may actually prove to be more profitable for the company.

Nevertheless, for those complaining about the company’s pricing tactics, it doesn’t hurt to remember a few things.

  • Watching movies and television shows on demand or renting DVDs is a luxury, not a necessity or a right. If the service is unaffordable, stick to your budget and cancel the service. This isn’t like a increase in gasoline prices from $2.50 to $3.50 per gallon overnight. People need gasoline to work and earn an income. The backlash against Netflix seems to be more severe than that against any gasoline price increase in the past five years.
  • Only canceling your account — and most other customers canceling their accounts — will send a message to Netflix. That’s unlikely to happen.
  • The price for unlimited streaming and DVDs still seems like a pretty good deal when compared with other entertainment options, like seeing movies in a theater or subscribing to cable or satellite, particularly if you include premium channels.

Were you affected by the Netflix subscription rate change? If your costs would increase, will you be changing your plan?

Article comments

lynn says:

And it is greed. The CEO just admitted it using some fancy words about his personal growth being thwarted. Netflix lost more thasn they bargained for and is trying to back stroke the decision. DS kept the streaming for now, while we look into other options.

Anonymous says:

I cancelled my subscription to Netflix on 9/1/11, to my daughter’s chagrin. It is so easy to cancel sign on again that the public needs to realize it does have power. They just don’t want to exercise it. I just decided to change my cable tv options so that I can have HBO and that will suffice for a while. If everyone did what I did, they would have to make an adjustment. They have the power. At this point, a monopoly. Too bad, I truly loved everything about Netflix. Easy to change addresses when you have a temporary change in residence. Corporate greed never ceases to amaze me.

lynn says:

I’ve been looking into reducing costs in the area of ‘couch’ entertainment for quite some time. We are dropping Netflix on 09/01/11. Our video store has free DVDs that are educational and we’ll use that service. I just ordered my favorite cooking show – all of the seasons- on Amazon using my swagbucks. We are adding videos to our library and use the library so we can close down our direct tv account too. I get the news online and can listen to music online if I like. HULU also has free TV shows. It’s a difficult decision because we live in a rural community, but I am getting tired of the high costs. That’s my personal opinion. It will work for us.

qixx says:

I may have to drop Netflix all together, but not from this price increase. We have just streaming service but use it enough that we go over the Comcast monthly data cap.

Anonymous says:

I have been with Netflix since 2008, I won’t be a cutomer of Netflix in any plan as of 9/1/2011. I get they want to make more money and cut less profitable plans. I want to cut expenses and keep my money.
So long Netlfix…..

Anonymous says:

I will save money with the new pricing structure. I currently have 1 DVD-at-a-time rental with streaming added in. I barely use the DVD rental, but do consume a fair amount of the streaming feature. I will just drop the DVD rental and have Redbox provide for the occasional new release.

Why are people so upset about the price increase? I wonder if they understand that Netflix has to pay for the content they provide.

Donna Freedman says:

I don’t have Netflix, so technically I don’t have a dog in this hunt. I do, however, think the hue and cry over the rate increase is silly. As Flexo says, this is a luxury, not a necessity.
We’ve become so accustomed to great deals 24-7 that we forget businesses are, by definition, out to make money. Low prices cannot continue forever and don’t even exist in some quarters (gasoline is a great example).
Consumers have the right to cancel if they feel ill-used, but I think they’re overreacting.

tigernicole86 says:

My boyfriend has decided that he is keeping his account but he has 5 of us watching on his account. It’s more the principle of the price change. But we also have hulu plus to supplement what Netflix doesn’t provide for streaming. But once we move, we think we’ll stick with crackle since it’s a free ad based service and then get *gasp* cable.

Cejay says:

I stopped my account a while ago because it took forever to get the movies and I never could get any of the newer releases. I now go to the RedBox kiosk or the Blockbuster kiosk if I am desperate. If there is a TV show that I want to see I try Hulu and then Blockbuster as a second measure. Maybe Netflixs will make enough money off the increase but everyone that I have spoken to are cancelling their accounts.

Anonymous says:

I cancelled my cable subscription several years ago which was $66/month. Last year my son convinced me to try Netflix and offered to pay half the price. All we really use is the streaming so we will cancel the the DVD portion which will now cost us $4 each a month.

The best part of Netflix is having no ads. Also, not being big television watchers or movie goers there is always something to watch on the few occasions that we want to idle away a few hours.

Even die-hard bloggers need a break some time.

Anonymous says:

I’ve cancelled them today. Greed will be their downfall.

Anonymous says:

To be honest, I haven’t used Netflix in years. However, all the hoopla makes me want to take a look at pricing! So potentially, the outrage will spur more memberships for Netflix. I live in the Colorado mountains, town/stores are 40 minutes away. It would make sense to me to do the streaming part… we don’t have doorstep delivery (P.O. Box delivery only) and if I take out a DVD it’s usually Redbox.
Great insights on the topic! Lisa

Bobka says:

I have the unlimited streaming only plan. The movie selection is limited but, for now, I plan to keep it. Hopefully, Netflix will increase the size of the streaming library. If that does not happen, and Netflix raises the cost of the streaming plan, I’ll probably switch to Amazon.

Anonymous says:

I will be deleting my netflix account after 5 years before the increase goes into effect. I had not been getting my money’s worth for the past few months because I was getting new releases in the 28 day window free from my local library or watching HBO or Showtime onDemand and sitting on my Netflix DVDs for weeks. I think at this point I will donate the money to my local library and continue to borrow for “free” there. Also Amazon Prime ($79/year) has unlimited instant streaming, so far I have had that free for 2 years between promotions and free online codes. I know a student account is only $39 a year, plus you get free expedited shipping benefits on top of the streaming. I guess I should thank Netflix for the push, I probably would’ve gone on paying for DVDs I was not watching for the foreseeable future if they had left it alone.

Anonymous says:

I don’t think I’d Red Box $15 worth of DVDs over the course of the month, so the price jump is going to make me cancel my plan on the last day of August. I just hope I can get caught up on some TV shows before then!

Anonymous says:

We will probably cancel our subscription. We’re lucky — there’s a $1 movie theater right down the street. and there are online services like Hulu which are free to watch. Earlier this year, we cut back on our subscription to the lowest plan Netflix had available, as we are living on one income and this is our main entertainment spending, but we will learn to live without Netflix in future. Netflix is a luxury and with the price hike, for people living through the recession on one income having cut out every single thing possible to live on bare bones, Netflix will be too luxurious for the working poor come September.

Anonymous says:

I remember reading a while ago that Netflix believed the future of their business model was in content streaming — this is reflected in their surprise that there was still “such a high demand” for DVDs.

However, that was before the companies they were negotiating media rights with, decided Netflix was taking too much business. Netflix is already, in many cases, having to delay rentals of new movies about a month from the retail DVD release — there’s no way these companies would allow Netflix to just stream their movies either, not while the DVDs are fresh on the shelf.

So if Netflix aims to “coax” customers to a digital-only model, they better find a way to expand their streaming content… unlike when Netflix first started, competitors like Redbox, Blockbuster and Hulu Plus can provide alternatives for people.

Anonymous says:

“Netflix’s way to gently coax customers”

That’s the problem– an increase of 33% to 60%–and all at once– is not *gentle*!! They should have increased the prices gradually over the next two years; say every 6 months.

People do complain about gas prices… however, the gas companies don’t suddenly raise their rates 33% all at once. Plus, have you looked at ExxonMobil’s forums? Are there any? If they have them, I’ll wager there are lots of complaints!

Seems to me you have an excellent idea… a web page dedicated to raising Cain about the oil companies’ pricing, subsidies, and legally skipping paying taxes!

Anonymous says:

I think the backlash was more severe because of how Netflix went about this. They came in with extremely low prices, put all their competition out of business, then raised their prices when they were the only sheriff in town.

Sure, it’s business. But it’s not the right way to build a happy consumer base.

Anonymous says:

I will probably drop the DVD and keep streaming only. We sit on the DVDs for months, but I enjoy watching tv shows streaming. I think it’s even better than a DVR – I don’t have to fast forward through commercials, and I can watch several in a row. You make a good point about comparing the price though, one DVD at a time plus streaming is still about the same monthly cost as Showtime or Cinemax.

Anonymous says:

I always kept a 1-DVD-at-a-time plan so that I wasn’t limited to their instant library. Sometimes you want to watch a movie they don’t have instantly. That was really the only reason I kept Netflix at all, because there are certainly cheaper options for streaming. So I’ll be going to Amazon Prime, which always struck me as the better deal anyway.

shellye says:

My husband and kids love Netflix, so if I suggest we cancel, I will probably be on the losing end of that battle…

Anonymous says:

Streaming doesn’t work for me. Even if I downloaded a whole movie first before watching, it stopped to buffer every 10 minutes or so. So I never used it and after being advised of the recent change, I reverted us back to our DVD only, one-at-a-time option. If Netflix ultimately discontinues or makes that financially unfeasible, no biggie. It has always been just a supplement to video stores and the library for us.

Anonymous says:

Video stores? I haven’t seen one of them in a few years if not longer.

wylerassociate says:

I have both mail & streaming services with netflix. I don’t like the price increase but understand it. For now, i’m going to keep both mail & streaming but eventually will move to only streaming. 17 dollars a month for both isn’t too bad right now.

Anonymous says:

Unlimited streaming is great for people who are not giga-byte restricted by their internet services provider. I live in a rural area, and the only broadband option is satellite internet, and my provider limits my download capacity during the 6 am to 2 am time block. Downloading just one movie (~ 4 gigs ) puts me over the top of my daily allowance, and if i go over, i get slowed down to dial up speeds. ( e gads!!) If i could figure out a way to auto schedule the download during 2 am to 6 am period and watch it later at my convenience, ” unlimited” streaming could be an option. But for now, the DVD only, 2 at a time option at $12 a month seems like a decent deal to me. And as Flexo pointed out, this is a discretionary expenditure, and i could always drop the plan and spend the $144 a year on more pressing needs if it came to that.

Anonymous says:

This is a total turn around from the business model that made this company great. I thought streaming was a great add-on to the service but now they make it look like the DVD service is the add-on.

I knew this was coming when I read a Netflix officer interview last couple of months in a magazine (forgot which one) where the main goal for “what’s next” is to move people towards streaming. Netflix totally wants to get out of the DVD delivery business. And here we are.

The reasoning that the DVD service for $2 a month does not make business sense are just thoughts coming out of their asses to make streaming look more valuable. Again, remember the original business model. Before streaming came, customers paid a premium to have DVDs delivered to their doorsteps. Now all of a sudden, DVD deliveries are just $2 a month service so they can justify that it’s just costing the company more. How convenient for them to come up with that reasoning.

$7.99 for streaming that doesn’t have all the titles they offer on DVD is not worth it. If they did, I’d gladly pay even $10 a month.

Sarah says:

I have a streaming-only account, so I’m not going to be affected by this, but I can’t say I didn’t expect something like this to happen. Distributors keep raising prices for Netflix; netflix has to raise prices to keep up. I don’t blame them at all for this.

Anonymous says:

I got the notice yesterday. I’m keeping the shipping side, but dropping from 2 DVDs at a time to 1 DVD at a time, and using the streaming side. I don’t want to get rid of the shipping option, because SO MANY of the titles I want just aren’t available to be streamed. I’m not particularly happy that I’ll be losing service and paying more for it, though. I tend to watch my Netflix DVDs in spurts, so it’s nice to have them in twos. Ah well.

Anonymous says:

The other option with Amazon is sign up for Amazon Prime, which allows for unlimited steaming of their movies.

It’s $79/year So it’s cheaper than the $15.98 1 DVD/streaming option. Plus other benies with Amazon.

So I’ll be getting just streaming from NetFlix and Amazon’s prime.

Anonymous says:

The movies available for streaming through Amazon Prime are the same as the movies available through Netflix Instant. You’d be paying double for nothing.

Anonymous says:

Not true Bonnie. Amazon has brand new releases available. I paid $9.99 for a movie the same day it was released. A few friends came over and we split the cost. It was only a little more than paying at redbox for each of us. Or we could have paid $8.50 at a theater plus $8 for popcorn and $6.50 for a soda. I’m sure its not the same as getting Amazon prime but they have everything at Amazon.

Anonymous says:

We’ve had our account on hold for most of the year so far. At times I miss it, but by and large, we’ve been able to get by through using our current DVD collection, renting from the library, or using the selection we get through our cable’s On Demand library. If and when I go back, I’m certainly not going to pay $16 a month.

Anonymous says:

I dunno, I think I may be switching to streaming only. Netflix has consistently gotten more and more expensive over time (I thought things were supposed to get cheaper!). Sadly that’s just what they want us to do – it costs netflix MUCH more to mail you a DVD and get it back than it does to deliver a stream (cost for streaming an HD movie – about 5 cents, cost for round trip mailing a DVD around 10-15x as much). Yes the rights to streaming content are getting more expensive (to all content really). But in the long run Netflix will always save money on a stream vs a DVD because of the huge differential in delivery cost.

I read a post somewhere that posited that they should have tiered streaming plans too – like instead of just $8.99 all you can eat streaming, do 8.99 for the current offering and also offer a premium service at around $20/month that includes all the cool stuff you normally can’t stream. Lots more revenue for netflix so they can go and buy those licenses. I’d be all up for that.

Anonymous says:

The online streaming is really only good for children’s movies (which is why we keep it). All adult movies are crap. Amazon’s pay per film has a much better selection and could be cheaper than netflix if you don’t watch that many DVDs that often. It sounds like we’ll be canceling the DVD option.

Anonymous says:

Netflix will raise the cost of shipping DVDs until it makes no sense for them to keep shipping DVDs. When that happens, they will stop the shipping service in favor or a streaming-only service, and will then increase the cost of streaming.

I predict it will take 6-12 months to drop the shipping service, and another 6 months for Netflix to raise the price of streaming. I believe the cost will rise to $9.95 a month at that time, and then rise again to $12.95 a month within another 12 months.

Anonymous says:

I think Redbox should get a boost from this. It’s now cheaper to pay for streaming only from Netflix and rent a few dvds from Redbox than pay for streaming and dvds from Netflix.

Anonymous says:

Plus with redbox you can get the new releases that netflix streaming doesn’t have available.

Anonymous says:

I will still be subscribing to Netflix. I love the convenience of online streaming, and having a DVD delivered right to my doorstep. Even with a 50% increae in price, it is still an excellent deal that I hope to take advantage of for years to come.

tbork84 says:

I have already changed my plan to only include streaming. When it was only $1 more to have a DVD at a time it was worthwhile, but that is no more.