Why Netflix Raised Its Prices - David Pogue
All over the Web, you can read analysts explaining the backstory this way: “Why, when Netflix first unveiled its streaming feature in 2007, nobody else was streaming this stuff. To the TV and movie companies, it was free money. But now, all those contracts with Netflix are up for renewal, and the movie and TV studios are all charging Netflix a lot more!”
There’s only one problem with that analysis: According to Netflix, it’s wrong. The new studio contracts have nothing to do with the price change.
In fact, Netflix swears up and down that higher costs of doing business have nothing to do with the price hike.
So the question is: Why?
Netflix’s blog offers this:
“Why the changes? Last November, when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering.”
I’ve read it five times, but I have no idea what that means. How does a 60 percent price hike “ensure a long life for our DVDs by mail”? Does it mean they’ll buy more discs? Use thicker shipping envelopes?
And how can Netflix, the world leader in DVD distribution, be so dense as to “realize” only now that some people still want DVDs?!
What I just can’t get past is this: Apparently, the DVD unlimited plan was profitable at $10. Netflix had every intention of “a long life” for that plan at $10. So I ask again: What changed in eight months that requires a 60 percent price hike?
So I spent a long time on the phone with a Netflix spokesman, Steve Swasey. He made these points:
A very worthwhile read. Apparently, it has nothing to do with streaming and everything to do with the DVD’s. At least, that seems to be Netflix’ stand on it for now.