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 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
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
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
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.

"If you mod me down, I will become more insightful than you can possibly imagine." -- Slashdot

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