Netflix announced changes to its subscription pricing this week, and the world is up in arms. Details are on the Netflix blog, but the bottom line is that if you use both discs-by-mail and streaming, you’re about to pay an extra $6 per month. The price increase is on the by-mail side.
The overwhelming majority says Netflix is squeezing customers for money. I say Netflix is dumping the floppy drive. Under the old plan, DVDs by mail cost as little as $2 on top of the streaming charge. When I’m in the zone, I can get eight rentals per month on the single-disc plan. That’s 25 cents per rental. For that money, Netflix processes the discs; pays for postage in both directions; purchases new releases; maintains inventory; and services faulty discs. Oh, and the aging delivery channel behind it all is dying.
Do you want that business? Netflix clearly doesn’t. This new pricing model is a deterrent to get people off a dead technology that increasingly hurts the company’s bottom line, and ultimately its future. The sooner Netflix exits the physical arena, the sooner it can focus on competing with the likes of Apple and Google in the digital arena. (Enjoy the table scraps, Redbox.)
More importantly, Netflix’s licensing situation is about to get ugly. Just this week, CNNMoney reported that a number of existing streaming deals between Netflix and the studios are expiring in the next year. The studios will most definitely want their pound of flesh this time around, and so Netflix absolutely must accelerate streaming adoption. As its share of the streaming market increases, so should its leverage when negotiating with the studios. And by separating the streaming and by-mail audiences, it will have the data to prove where the market is going. What’s unclear is whether the studios will see these price changes as an act of confidence, or one of fear.
It’s a gamble that may or may not pay off, but the writing is on the wall. Netflix is smart to do this before it has no other choice.