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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.



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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?!!?


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