backtop


Print 83 comment(s) - last by lazylazyjoe.. on Jul 22 at 4:48 PM


DVDs cost Netflix 75 cents each to ship while it only costs 5 to 10 cents to deliver the streaming equivalent.
The company underestimated demand for DVD rentals, and had to cover the costs of streaming rights

Last Tuesday, Netflix announced that its pricing and plans were changing, which resulted in a price hike for users that currently only pay $9.99 for DVDs and streaming. Effective September 1 (for existing customers), this price will jump to $15.98, while DVD-only plans and video streaming only plans are $7.99 for one or the other.

This angered Netflix customers to the point that Netflix had to bring in additional customer service representatives to handle the amount of phone calls pouring in. Customers also voiced their opinions on social networks like Facebook and Twitter, saying that the pricing was sudden and unfair.

But Netflix has outlined a couple of reasons as to why it has made these price changes according to USA Today. First, it underestimated the demand for DVD rental. Second, it has to cover the expenses for licensing rights from movie studios and television networks in order to provide better content. 

Netflix has been working to move customers more toward streaming since November, when it released a $7.99 streaming-only plan. This is because DVDs are more expensive to ship at 75 cents per disc, while sending a streamed internet video only costs about 5 to 10 cents. 

But with much of the newer releases being DVD rentals only, Netflix customers have flocked to this particular service while still enjoying content that is part of the streaming service as well. 

This demand for DVDs led Netflix to both introduce a DVD-only plan for $7.99 (as well as the steaming-only plan for $7.99) and to heighten the price of DVD/streaming bundle packages from $9.99 to $15.98. 

While adjusting prices and plans for DVD rentals was an important step, Netflix also understood that it had to beef up the streaming service by making more movies/television shows available in order to lure customers in that direction. To do that, it needs streaming rights, and streaming rights are pretty expensive.

In the first three months of 2011, Netflix spent $192 million on streaming rights. Last year, it spent $406 million on its streaming library. Next year, licensing rights costs are expected to jump between $1.3 billion and $1.4 billion, mainly because movie studios and television networks want a large piece of Netflix's successful pie. As of March 2011, Netflix had 23.6 million users. 

"Netflix is under enormous pressures from the content owners to write bigger and bigger checks," said Arash Amel, research director for digital media at IHS Screen Digest. "It had to find the money from somewhere."

Netflix also has a desire to bring in more money as it grows, since it has actually lost money over time. At the end of 2006, Netflix received a monthly average of $15.87 per subscriber (this was before streaming launched). During the first quarter of this year, it received a monthly average of $11.97 per subscriber.



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

Screwed either way
By Brandon Hill (blog) on 7/18/2011 9:36:18 AM , Rating: 3
Netflix is screwed either way. They need more streaming content to lure customers away from DVDs/Blu-rays, but the licensing costs for streaming content are enormous.

I don't know how Netflix streaming content compares (library size) to its disc content percentage wise, but I'm assuming it's a pretty low figure.




RE: Screwed either way
By dagamer34 on 7/18/2011 9:51:32 AM , Rating: 2
It's quite obvious that streaming is the future. It's better to have the pain now than wait a few more years for the inevitable.


RE: Screwed either way
By tng on 7/18/2011 10:33:00 AM , Rating: 5
quote:
It's quite obvious that streaming is the future.
Nonsense, it was obvious that streaming was the future, before the content owners decided that they could charge outrageous sums of money to sell the content.

To me it looks like this.

1 Netflix develops the most successful streaming business out there.

2. Content providers (studios) can't stand to see anyone bout them make money off of the content but them and will confiscate the money via high fees to Netflix.

3. Can't see how, but I expect the RIAA (or the movie equivalent) to get involved since they see $. They will think of a way to find piracy in it somewhere....


RE: Screwed either way
By MrBlastman on 7/18/2011 10:55:10 AM , Rating: 5
quote:
3. Can't see how, but I expect the RIAA (or the movie equivalent) to get involved since they see $. They will think of a way to find piracy in it somewhere....


They already are involved. They're trying to figure out a way to make it illegal to share your Netflix account login/password with other people (including your own family members that live in your house) through legislation.

They are hard at work lobbying on this issue right now.


RE: Screwed either way
By tng on 7/18/2011 11:03:25 AM , Rating: 2
quote:
They already are involved.
Knew it! Thanks Blastman


RE: Screwed either way
By Cypherdude1 on 7/19/11, Rating: -1
RE: Screwed either way
By BZDTemp on 7/19/2011 7:30:28 AM , Rating: 4
And this is relevant?


RE: Screwed either way
By Iaiken on 7/18/2011 11:24:28 AM , Rating: 2
quote:
They already are involved.


They are also trying to enact legislature that would make re-streaming video (via screen share, sling box, etc.) illegal.


RE: Screwed either way
By AggressorPrime on 7/18/2011 2:17:16 PM , Rating: 2
Stopping family members from all using one account is just stupid. When you rented a DVD back in the day when they had DVD rental stores, everyone in the family could watch the DVD. Now, with streaming, everyone in the family should have access to one plan. It just makes sense that way.


RE: Screwed either way
By MrBlastman on 7/19/2011 12:15:02 AM , Rating: 2
Nothing the MPAA or RIAA thinks or does makes any sense.


RE: Screwed either way
By danjw1 on 7/18/2011 12:38:21 PM , Rating: 3
quote:
3. Can't see how, but I expect the RIAA (or the movie equivalent) to get involved since they see $. They will think of a way to find piracy in it somewhere....


I organization is called MPAA.


RE: Screwed either way
By danjw1 on 7/18/2011 12:40:32 PM , Rating: 2
Opps, I meant: The organization is call MPAA.


RE: Screwed either way
By Camikazi on 7/18/2011 1:33:51 PM , Rating: 5
Same difference, both demon spawns from hell :P


RE: Screwed either way
By tastyratz on 7/19/2011 10:03:40 AM , Rating: 2
You are nicer in your name calling for them than myself...


RE: Screwed either way
By lamerz4391 on 7/19/2011 1:34:19 PM , Rating: 2
also known as: MAFIAA


RE: Screwed either way
By 3v1lkr0w on 7/18/2011 10:47:10 AM , Rating: 2
I don't see streaming being the future, at least not in the US, not until the ISPs get a part of the action. With major ISPs providing caps only as high as 250 GB a month (I may be mistaken, there may be a few out there with higher still) that seriously limits individuals. With HD movies being roughly 3.5GB of bandwidth, that is roughly 70 two-hour movies. And that's not counting if you game or stream other things or download (legally or illegally). Until major ISPs can offer reasonably priced high-speed, high bandwidth volume, internet service I don't see disks leaving anytime soon.


RE: Screwed either way
By FITCamaro on 7/18/2011 11:42:39 AM , Rating: 2
Well that will be part of it. If Netflix + OTA + online offerings ever gets to where they can truly replace cable, expect the price of your internet to go up to make up for the lost revenue. They're close now. But not quite there.


RE: Screwed either way
By Motoman on 7/18/2011 11:19:55 AM , Rating: 3
Not for everyone.

About 80% of the US population lives in urban areas - if we presume that *all* of them can get sufficiently high-speed internet access, then that's great for them.

The other 20% lives in rural areas...frequently with no high-speed internet access at all, or with not-really-high-speed access available. I am on 3Mb DSL, which is absolutely the fastest available to me...after having gotten by on satellite internet for several years...which is best chracterized as "better than dial-up...maybe." And I have other friends now using cellular air cards because they're at least not as bad as satellite.

For at least a fifth of the US population, streaming isn't the future. We tried Netflix streaming, as have many of our friends who also live with similar connection speeds - it's not usable. Everything else is just great...including MMORPG gaming, which requires amazingly little bandwidth. But streaming is a non-starter.

And before you get too bent out of shape as to being out in "the sticks" I'll point out that in 30 minutes I could be parked in a major city, and where we live is definitely considered part of the overall metro area, where something like 4 million people live. Not an area many people would consider to be all that "rural," really.


RE: Screwed either way
By Reclaimer77 on 7/18/2011 12:04:52 PM , Rating: 2
But Moto by your own numbers, which we'll use for arguments sake, you can plainly see that marketing to 80% of a base is more profitable than the 20%.

quote:
For at least a fifth of the US population, streaming isn't the future.


Sure it is. Better broadband is in their future, thus, streaming. If, in fact, a whole fifth of the country has broadband options as poor as yours.

Curiously, 3mb DSL should be enough to stream standard definition Netflix just fine. So how is it that Netflix isn't "usable" for you guys? If you can watch Youtube, you should be able to watch Netflix.


RE: Screwed either way
By Motoman on 7/18/11, Rating: 0
RE: Screwed either way
By Spuke on 7/18/2011 1:19:56 PM , Rating: 2
Broadband is definitely coming to the sticks!! One of the local ISP's is offering wireless internet for those that live in the boons. The cool thing about wireless is you get the same speed up and down. It was 1.5M until two months ago when they upgraded to 6M. I consistently get 4.5 to 5M. No issues with Netflix at all. Even the ISP's owner (sometimes he answers the phone personally) calls our antenna "the Netflix antenna". The connection is so stable I even got a Hulu Plus account. I can actually watch Youtube videos in HD (I had to wait for it to buffer before on SD). I would check around and see if there's a local ISP that offers better services.


RE: Screwed either way
By JediJeb on 7/18/2011 3:44:12 PM , Rating: 2
I have a 1.5M connection through ATT DSL and I can run netflix pretty well. Only occasionally do I get a buffering and that is when something decides to update on my computer running in the other room. I do only have SD since I am still using my 31" Mitsu CRT but the pic on it is probably better with Netflix than it is with DirecTV.

I am about 5 miles out from town and we just got DSL here last year, and I am near the end of the line. It may be coming to everyone but it definitely isn't here yet. Also with the hills here it would be hit or miss for most wireless broadband because even though I have full cell signal at my house, a quarter mile down the road has no cell signal at all.

I also would consider your 20% rural population pretty conservative, I think there are more people living outside the reach of most broadband than gets counted as such.


RE: Screwed either way
By adrift02 on 7/18/2011 12:47:34 PM , Rating: 2
My in-laws had DSL and it didnt end up even close to the rated speed. DSL drops off considerably over distance compared to cable.

Netflix would constantly drop below full SD, was pretty annoying.


RE: Screwed either way
By InsaneScientist on 7/19/2011 4:07:09 AM , Rating: 2
quote:
Curiously, 3mb DSL should be enough to stream standard definition Netflix just fine. So how is it that Netflix isn't "usable" for you guys? If you can watch Youtube, you should be able to watch Netflix.


Because a 3Mbps DSL plan = 1Mbps average downstream bandwidth with peaks and valleys so bad that an ECG would compare favorably to a graph of the throughput.

Oh, plus the monthly (or more, depending on how far from the DSL office you are) instances of things dying, and having to reset everything.

I wish I were making this up. But every single one of my clients with DSL sees problems like this. The sole client that doesn't suffer from monthly resets is a local school with (two) "business" class lines - which still only get ~70% of the rated bandwidth on a good day - and even there I occasionally have issues with the DSL lines.

</rant>
Sorry about that...


RE: Screwed either way
By Motoman on 7/19/11, Rating: 0
RE: Screwed either way
By Spuke on 7/18/2011 1:10:13 PM , Rating: 1
quote:
About 80% of the US population lives in urban areas - if we presume that *all* of them can get sufficiently high-speed internet access, then that's great for them.
No, about half live in urban areas in the US but good point anyways.


RE: Screwed either way
By kingmotley on 7/18/2011 2:03:43 PM , Rating: 2
No, about 79.219% live in urban areas to be more exact with 20.781% living in areas considered rural as measured in the 2000 census.

http://www.fhwa.dot.gov/planning/census_issues/met...


RE: Screwed either way
By smithme08 on 7/18/2011 2:06:22 PM , Rating: 2
Jinx ;)


RE: Screwed either way
By smithme08 on 7/18/2011 2:04:31 PM , Rating: 2
According to the US census from 2000 (most recent for which I could find published results quickly) 79.219 percent live in urban areas, which most people would find acceptable to round to 80. Just putting a source to a tossed around statistic :)

http://www.fhwa.dot.gov/planning/census_issues/met...


RE: Screwed either way
By wyrmslair on 7/18/2011 5:19:23 PM , Rating: 2
Right there with you. I live in a suburb of Los Angeles County that sits directly above Orange County (The OC!). In fact, I went to school up through HS in the OC instead of LA County. So I'm definitely not in "the styx". That said, I cannot get any Verizon service above 3Mbps. If I was willing to go back to being raped by TWC, then I can get cable much faster but my options are very limited. Ironically, I live in a very affluent community but my friends and family members who are farther out from "the city" and/or in much lower income areas (where I'm assuming there would be a lower percentage of consumption for a "premium service") can get FIOS at 8 to 25 Mbps.

Folks, we are not truly a high bandwidth nation, even in the major metro areas.


RE: Screwed either way
By Willhouse on 7/18/2011 11:59:22 AM , Rating: 2
Streaming may be the future, but it needs major improvement in a few areas for me to switch over entirely: a) subtitles on most offerings, and b) better fast forward or rewinding. Disc's are still superior in this area.


RE: Screwed either way
By Dr of crap on 7/19/2011 10:34:08 AM , Rating: 2
Hey, streaming is great but their content for streamng is SUPER BAD. There is much more I want to see after streaming a few movies.

Yes the problem is that all the newer movies released are on DVD and not straming. And the streaming needs to get better resolution. Why have 1080HD TV if the steaming content is not HD?!!?


RE: Screwed either way
By inighthawki on 7/18/2011 9:52:27 AM , Rating: 2
Discs aren't going away anytime soon. Even on a blazing fast internet connection, streaming cannot even begin to compare to the quality of a blu-ray disc being played in full HD.


RE: Screwed either way
By 0ldman on 7/18/2011 9:54:53 AM , Rating: 1
Its close enough.


RE: Screwed either way
By wushuktl on 7/18/2011 9:59:24 AM , Rating: 2
i agree, it's close enough. And given the convenience streaming offers, i'd say it's well worth the compromise.

Unfortunately, my dad is a postal worker and I'm sure the Post Office would be in way worse shape without NetFlix, so to hear NetFlix talk about wanting to move away from DVD rentals is a scary thought for him and his future employment


RE: Screwed either way
By kattanna on 7/18/2011 10:12:15 AM , Rating: 5
if my mailbox is any indicator, junk mail is what is keeping your dad in business


RE: Screwed either way
By Mitch101 on 7/18/2011 12:36:07 PM , Rating: 2
6 it.

Yea where is the opt out for junk postal mail? I still expect to see AOL disc's in my mailbox.


RE: Screwed either way
By phantom505 on 7/18/2011 10:05:48 AM , Rating: 1
If you're can't see or hear, Oldman.


RE: Screwed either way
By tng on 7/18/2011 10:35:29 AM , Rating: 1
quote:
Its close enough.
No it isn't.


RE: Screwed either way
By MeesterNid on 7/18/2011 10:52:45 AM , Rating: 3
Yeap...for me personally and I would venture to say that at least 80% of others out there that is what matters! I'd much rather have something "pretty dang close" most of the time instead of "having to have" awesome all the time.


RE: Screwed either way
By MrBlastman on 7/18/2011 10:57:37 AM , Rating: 2
I don't even own a Blu-Ray player or even... *gasp* a HD TV. Yeah, I don't even have HD. I still run a 27 inch SD Trinitron Tube at home.

I do have a 1080p 27 inch monitor on my PC but that doesn't really count.

So, streaming is just fine for me as it is. I don't watch enough TV for a HD TV to be worth the money. I can wait for SED to eventually come out.


RE: Screwed either way
By tng on 7/18/2011 11:29:35 AM , Rating: 2
quote:
I can wait for SED to eventually come out.
Keep waiting... Canon had to drop their development partner Toshiba after the company that owned the patents sued them. Unlikely that Canon alone will finish the project on their own. OLED has more of a future since it is being developed by multiple companies and has seen implementation in devices in the commercial consumer market already.


RE: Screwed either way
By Spuke on 7/18/2011 1:27:51 PM , Rating: 2
quote:
I can wait for SED to eventually come out.
Find a Pioneer Kuro somewhere. You'll be happy with that.


RE: Screwed either way
By quiksilvr on 7/18/2011 10:17:42 AM , Rating: 2
What IP Man on the PS3. 1080p and surround sound. If Netflix is capable of streaming that incredible quality, I see disc formats dying sooner rather than later.


RE: Screwed either way
By FITCamaro on 7/18/2011 10:38:02 AM , Rating: 3
Because video quality is everything right? To me the ability to just watch whatever I want, whenever I want is better than dealing with sending discs to and fro. The quality of Netflix's HD streaming is quite good in my opinion. Of course it depends on your internet connection.


RE: Screwed either way
By FITCamaro on 7/18/2011 10:38:45 AM , Rating: 3
Also TVs and movies that are garbage in HD means little. Much like games. It doesn't matter how pretty it is if its still crap.


RE: Screwed either way
By Bad-Karma on 7/19/2011 2:36:38 AM , Rating: 2
I don't know about that. My wife and I were pretty happy with a 53" pioneer we picked up in 2001 but when it died earlier this year and we decided to go for a 65" Panasonic Viera Plasma.

We stream from Neflix and Amazon but we found that even some 720P looks grainy at that scale. We've both noticed that we now trend toward Blu-Ray whenever possible.


RE: Screwed either way
By Reclaimer77 on 7/18/2011 12:24:28 PM , Rating: 2
Of course discs aren't "going away". But you seem to be vastly understating the important of convenience. Netflix's bread and butter is convenience. I get to watch something right now. Sure, your disc has better quality. But it is also stuck in the mail, meanwhile I'm enjoying my stream right now.

If you're a big audiovideophille, then yes, waiting for discs in the mail may seem like the "better" option. But for most people HD streaming is 'good enough' when taking into account the on-demand convenience. You make it seem like you're unable to enjoy something unless it's in full blu-ray HD, come on.


RE: Screwed either way
By Spuke on 7/18/2011 1:36:32 PM , Rating: 2
I agree, it really is good enough. I still get Blurays from Netflix and will continue to do so but some things don't need to be seen on Bluray.


RE: Screwed either way
By Salisme on 7/18/2011 12:41:39 PM , Rating: 2
I've downloaded HDX streams (FiOS) from Vudu which are pretty darn close to Blue Ray. I don't understand why the post got voted down. I get no buffering, excellent sound, and visuals are beautiful.


RE: Screwed either way
By nafhan on 7/18/2011 9:58:33 AM , Rating: 2
I don't think Netflix is screwed at all. even with the price increase it's still an incredible value. Except for a vocal minority, I think people are going to keep paying. I think what it will do is get more people thinking about switching to streaming only.


RE: Screwed either way
By Fracture on 7/18/2011 9:58:35 AM , Rating: 2
Yeah, licensing costs are bad but did you find out anything about the expected increase in traffic and the related bandwidth costs?


RE: Screwed either way
By RamarC on 7/18/2011 12:00:14 PM , Rating: 2
I still wonder how Netflix was able to be so successful with a DVD-centric business model (being the main reason Blockbuster and Hollywood Video closed their stores), but now DVDs have become too expensive.

IMHO, this is a direct result of the CEO declaring Netflix was a "streaming company" and f'ing up a good thing!


RE: Screwed either way
By gorehound on 7/18/11, Rating: -1
RE: Screwed either way
By UNHchabo on 7/18/2011 6:16:56 PM , Rating: 1
quote:
more signs that mom and pop retail stores will all die thanks to lazy got to have it instant people.


Yes, because Hollywood Video and Blockbuster were totally mom-and-pop stores.

We're not talking about Netflix being an alternative to actual video stores, like the one I go to every week to look for cheap deals. We're talking about Netflix as an alternative to video rental stores, which have almost never been mom-and-pop operations in any town in the country (I can think of only one that I've ever been to, and that was in 1994).

Also, many of the previous posters were talking about Netflix Streaming vs. Netflix by mail. If the streaming selection were better, what's the matter with wanting my selected movie to start right away, instead of waiting up to a week for it to come through the mail?


RE: Screwed either way
By Hiawa23 on 7/18/2011 3:03:35 PM , Rating: 2
I have been a member since day 1, & I have the 2out at a time DVD/Bluray, plus unlimited streaming. So my subscription goes from $17.99 to 22.99, big deal.

If I compare Netflix to Redbox, Netflix is still cheaper for me. I go through atleast 5 mailed bluray/DVD movies per week plus the unlimited streaming, that works out to about 20 mailed movies per month plus unlimited streaming, & depending on what I am doing on any given weekend, I can watch 6 or 7 movies over streaming weekend period.

Redbox cost $1.50 per rental. Multiply that by 20, & add wear and tear of my vehicle, gas, & running to the store twice per rental, & it's not even close, Netflix still is the better value.

For those complainging about Netflix's selection, that's crazy, cause every movie released retail is available from Netflix physical disc, almost all, & some movies do have the 20-30 day wait period but if you keep a nice selection in your Q you always have the movies you want, so if I had to complain about one thing from Netflix, I would want all movies available for streaming, or do away with the 20-30 day grace period on some new releases, other than that, Netflix has been the best value for me on the internet other than Gamefly. As soon as I drop the movies off at the post office the next movie ships & they get to me the next day. If you can't wait a day then, I don't know whatelse to say. Seems many in this entitlement society wants everything free. These guys have a business to run & it's still a great value to me, if it aint for you then by all means cancel & move on with life.


"Google fired a shot heard 'round the world, and now a second American company has answered the call to defend the rights of the Chinese people." -- Rep. Christopher H. Smith (R-N.J.)














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki