Netflix sparked a flurry of customer outrage Tuesday with the announcement that it would no longer offer a plan that includes both unlimited movie streaming and unlimited DVD rental. These services will now be split into two plans, which start and $7.99 apiece. Together, they will cost about $16 — a 60 percent increase from the $9.99 price of the dual-option plan, which the company will cut on September 1.
This news was met by tens of thousands of furious comments on the Netflix blog announcement and the company Facebook page, with many users declaring the movie rental company dead in the water.
“Bad idea. Epic epic epic screw-the-customer fail,” says one Facebook commenter.
“I agreed to like this page so I could say that I am no longer a Netflix customer,” says another. “I told my family to cancel also.”
These types of comments go on and on. At the time of this writing, there were nearly 38,000 comments on the company’s Facebook page, most of them highly negative.
Despite the intense dissatisfaction among customers, however, investors’ reaction couldn’t be better: Netflix stock price popped by about 3 percent, at the time of this writing, to just under $300.
So, why the disconnect between the optimistic mood on Wall Street and the outright fury on Main Street?
According to Pacific Crest market analyst Andy Hargreaves, who specializes in technology companies, Netflix raised its prices in an attempt to actively shift from the expensive business of physical DVD rentals to the far more cost-effective endeavor of streaming movies and TV shows online. This, he says, is simply a wise business decision, at least in the long-term.
“Streaming, at a very basic level, is a better business than DVD distribution,” said Hargreaves in a phone interview with Digital Trends. That’s “because people use it more, the costs are fixed rather than variable, so you have more leverage longer term, and you can address new clients really easily, with no start-up costs, essentially.”
While changing the plan price structure may make sense for Netflix’s ultimate goals of becoming a streaming-only company, as opposed to a mail-order DVD rental operation, Hargreaves says that Netflix will likely lose some subscribers because of the price jump, but that the total number of lost users will be “negligible.”
“There are clearly subscribers who are pissed. There are clearly going to be subscribers who cancel because of this,” says Hargreaves. “I think, at the end of the day, that’s probably a vocal minority, a very small vocal minority.”
Hargreaves adds that, because the cost of a Netflix subscription is still far less than the average $100 price tag that goes with cable service, he expects the company will be able to survive the crashing wave of negativity, and still “continue to add [customers] in the next several quarters.”
“At the end of the day — and this is the gamble that [Netflix is] making — there’s going to be some saber rattling at the beginning, customers that are going to be annoyed because their price just got raised,” says Hargreaves. “Is that really going to change how customers view the service? Probably not.”
The obvious downside to a streaming-only Netflix subscription is that few new movies, especially the most popular titles, are available through that service, which is likely why the DVD rental option has remained so attractive to customers.
By making customers pay a minimum of $7.99 per month for the one DVD at-a-time plan, or $11.99 per month for two DVDs at once, Hargreaves says Netflix has made itself vulnerable to competitors like RedBox.
“On the DVD side you have viable alternatives. Redbox is pretty decent,” says Hargreaves. “They don’t have the depth of catalog [that Netflix has]. But you can get the same new movies.” In terms of streaming, however, “there are no other options.”
and a $7.99 stream only plan
Joseph Lanzendorfer from digitaltrends.com said:
"[T]here are no other options?" Are you kidding me? There's Hulu, Youtube, vudu, crackle, Qriocity, Amazon VOD, along with several others and more to come. Not to mention the harsh reality that many people still pirate the movies they want, especially when the price isn't right. The one thing that has kept Netflix ahead of these competitors is their DVDs by mail option that none of the other ones offer, along with the nice price break for getting the two packaged together. If Netflix wants to change their pricing to try to encourage people to go streaming only, they're going to make all the other streaming options on the market seem a lot more appealing. Selection is another problem with Netflix's streaming option. The DVD by mail option makes the streaming option look more appealing when it lacks the titles a customer is looking for.
Ian Bell from digitaltrends.com said:
While I agree that there will likely not be that many customers that leave (and those that do will probably come back), there are a couple mistakes that Netflix is making.
By offering their products on an ala carte basis, I am now going to just pay for their streaming service instead of both streaming and 1 DVD out at a time (which I currently have). So they could be losing money this way.
I also do not think streaming movies is anymore fixed price than mailing out DVD's. You are still relying on a third party for the delivery method.
Jeffrey Van Camp from digitaltrends.com said:
None of those services have nearly the library, availability, or ease of use that Netflix provides. I don't see them as competitors yet.
Hulu is weak on movies
YouTube is pay-to-rent
Amazon has a weak library and isn't available on many devices
Vudu is purchase or pay-to-rent
Crackle I'm not familiar with
Qriocity…really?
This move completely goes with Netflix's plan to move people onto its streaming services. It costs a lot more money and Netflix makes less cash when they have to mail DVDs out all the time and maintain a physical catalog of discs. If people want this feature, they can pay $8 bucks for it, which is less than they were paying for it a few years back btw. Streaming has become enough of a deal that it is worth it to pay $8 for that alone.
Price hikes sting, but Netflix needs to move people to its streaming services or get them to pay more if it wants to afford the expensive movies and TV shows coming in the future.
Rusty Shackleford from digitaltrends.com said:
I cringe when the price of something goes up like everybody else, but frankly, with Netflix I'm surprised it took this long. It's still a really, really good deal compared to cable. My only complaint will be if we don't see a slew of new, high-quality shows hitting the streaming side as a result of more money flowing in. I can tolerate another $8 a month or ditching the discs altogether for the same price, but show me where my money's going or I'll start sending it somewhere else.
Rusty Shackleford from digitaltrends.com said:
I cringe when the price of something goes up like everybody else, but frankly, with Netflix I'm surprised it took this long. It's still a really, really good deal compared to cable. My only complaint will be if we don't see a slew of new, high-quality shows hitting the streaming side as a result of more money flowing in. I can tolerate another $8 a month or ditching the discs altogether for the same price, but show me where my money's going or I'll start sending it somewhere else.
Rusty Shackleford from digitaltrends.com said:
I cringe when the price of something goes up like everybody else, but frankly, with Netflix I'm surprised it took this long. It's still a really, really good deal compared to cable. My only complaint will be if we don't see a slew of new, high-quality shows hitting the streaming side as a result of more money flowing in. I can tolerate another $8 a month or ditching the discs altogether for the same price, but show me where my money's going or I'll start sending it somewhere else.
Rusty Shackleford from digitaltrends.com said:
I cringe when the price of something goes up like everybody else, but frankly, with Netflix I'm surprised it took this long. It's still a really, really good deal compared to cable. My only complaint will be if we don't see a slew of new, high-quality shows hitting the streaming side as a result of more money flowing in. I can tolerate another $8 a month or ditching the discs altogether for the same price, but show me where my money's going or I'll start sending it somewhere else.
Greg Mombert from digitaltrends.com said:
I’m actually in favor of the new prices. I only want DVDs no streaming. My old plan for two DVDs and streaming was 14.99 with the new pricing structure two DVDs at a time with no streaming is down to 11.99. So I don’t think everyone will be upset over these new plans.
Greg Mombert from digitaltrends.com said:
I’m actually in favor of the new prices. I only want DVDs no streaming. My old plan for two DVDs and streaming was 14.99 with the new pricing structure two DVDs at a time with no streaming is down to 11.99. So I don’t think everyone will be upset over these new plans.
Greg Mombert from digitaltrends.com said:
I’m actually in favor of the new prices. I only want DVDs no streaming. My old plan for two DVDs and streaming was 14.99 with the new pricing structure two DVDs at a time with no streaming is down to 11.99. So I don’t think everyone will be upset over these new plans.
Greg Mombert from digitaltrends.com said:
I’m actually in favor of the new prices. I only want DVDs no streaming. My old plan for two DVDs and streaming was 14.99 with the new pricing structure two DVDs at a time with no streaming is down to 11.99. So I don’t think everyone will be upset over these new plans.
If you had all the DVD’s available for streaming, you could say Bye Bye DVD’s. As far as I’m concerned, you can fire that market analyst. Netflix will find out soon enough how much business and revenue they are going to loose. They will be bringing back streaming in no time flat!
Eh, here’s how it breaks down:
Netflix got into this market and had zero competition so they were able to negotiate low prices with production companies and thus, charge a price that was fair to the customers and still make a boat load of profit.
Now that they are up against companies with deep pockets, they won’t be able to get the same access rights for nothing – Amazon et.al. will steal them away and add them to their Amazon Prime (or something similar) membership. Netflix knows the only way to complete is to increase their cash on hand, ergo, increasing their cost.
I, for one, am not going to get up in my arms over $6.00 more a month for my plan but as it has already been stated, they can’t expect people to pay more and not increase their (streaming) catalog. I’ll give Netflix the benefit of the doubt from a business stand point and keep my subscription but if there is no new content and someone can do it better, I’ll switch to them.
My guess is that this will not be the last cost increase that we see from Netflix and they will probably price themselves out of the game in due time because it’s that or they return a tiny net revenue which means, no expansion.
The C-levels at Netflix didn’t have enough foresight to build up their streaming content and now it’s going to bite them. Once Hulu is acquired and someone can pay $20.00 a month for a ton of movies and TV streamed to their home, that will be the end of just about every other company who is in this game.
I’m actually in favor of the new prices. I only want DVDs no streaming. My old plan for two DVDs and streaming was 14.99 with the new pricing structure two DVDs at a time with no streaming is down to 11.99. So I don’t think everyone will be upset over these new plans.