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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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still the best deal in town
By kattanna on 7/18/2011 9:54:49 AM , Rating: 3
while i can understand some are upset by the new pricing, it is still the best deal in town. sure you can get newer movies and such streamed from some other services, but your paying for each episode or movie, not a low set price per month.

we do the 5 disc at a time plan and stream as well. and our price went up a couple bucks.. so what. still beats paying for movie channels or per viewing rentals.




RE: still the best deal in town
By th3pwn3r on 7/18/2011 10:16:59 AM , Rating: 2
There are FREE offerings that are much better than Netflix.

I imagine that soon enough every T.V. channel will offer streaming to people at the cost of their time being taken up by commercials. When this happens the end of Netflix will be in sight.


RE: still the best deal in town
By kattanna on 7/18/2011 10:29:34 AM , Rating: 2
quote:
cost of their time being taken up by commercials.


LOL thats one of the reasons why i LOVE netflix.. no damn commercials

and for going to a channels website to view their content, no thanks. had to endure that once when the DVR missed an episode of supernatural.


RE: still the best deal in town
By hkscfreak on 7/18/2011 11:13:17 AM , Rating: 2
you can always hit up the torrents for TV. last I checked it wasn't illegal yet. I'm sure they're working on it.


RE: still the best deal in town
By Alchemy69 on 7/18/2011 1:57:16 PM , Rating: 2
Check again.


RE: still the best deal in town
By Reclaimer77 on 7/18/2011 10:34:43 PM , Rating: 2
Yes, sorry, but I tried Hulu+ and I cancelled that same month. Not only are there way too many commercials for a paid service, but there aren't that many different ones. So you are subjected to the same 3 or 4 commercials over and over again for the entire night, no variety! It drove me nuts.


RE: still the best deal in town
By michal1980 on 7/18/2011 10:18:26 AM , Rating: 3
There is a big percentage difference in cost increase for those having a plan with a few disks out per month, vs those only getting 1.

And those having a plan with only a single disk out per month probably did so because thats the most they could afford or spend on netflix.


RE: still the best deal in town
By runutz on 7/18/2011 10:45:40 AM , Rating: 2
For some. Frankly, I soon tired of what movies they had to offer and dropped them months ago. Even at $8 bucks/month I wasn't seeing a value. Same for the Cable "Movie channels"

For those like you who find value in the package- go for it!
This is in no way an attack against you. I realize that none of the services can expect to make everybody happy, and still remain competitively priced.

For the few movies I WILL watch, I can walk the couple of miles to rent it at the Kiosk or Brick front and enjoy the scenery along the way.


RE: still the best deal in town
By RamarC on 7/18/2011 11:52:06 AM , Rating: 4
People are complaining because this is the 2nd price increase this year with no corresponding increase in service.

Also, netflix is screwing its original customer base who signed up because of their broad DVD library. If DVDs are to too costly to ship, how did they manage to put Blockbuster and Hollywood video out of business with a DVD-centric business model?


RE: still the best deal in town
By wempa on 7/18/2011 12:32:35 PM , Rating: 2
I agree. What does the standard cable TV package cost (not including internet or phone service) ? It's around $50 where I am. For $16 and an internet connection, you can basically get access to the same content, without having to deal with any garbage you don't want. We've been hanging onto our cable TV package just for a few kids channels that our daughter watches. Other than that, those other 100+ channels carry 99% junk.


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