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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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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.

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