Netflix Pricing Changes: What Now?

by Julie Rains on 19 July 2011 11 comments
Photo: Ken Wilcox

I flinched when Netflix raised its monthly rate for DVD + Streaming from $8.99 to $9.99. Briefly I pondered whether I should discontinue one or the other; I decided to stick with the combination service. But when the company upped its prices for the same services to $16 (okay, $15.98) just months later, I was upset. The change represents an overall +70% increase in less than a year, making me wonder about the stability of future pricing and rethinking the value of the service altogether. (See also: The Psychology of Pricing)

Decision: DVD or Streaming?

When I told my family that Netflix prices were increasing, I gave them the option of choosing DVD or Streaming (rather than both). The fast, unanimous decision was "streaming."

The truth is that we use the streaming option more often because of its convenience, despite the deeper selection available on DVD.

Still, I am torn. Having never been a big movie-goer, I saw Netflix as my ticket to seeing the movies that I had missed in the past couple of decades, partly because of other priorities and partly because of the expense of viewing first-run movies in the theater. And, after having children, I rarely visited the movie-and-game-rental stores, opting to purchase children’s titles like the Veggie Tales series and watching these over and over.

As my children turned into teenagers, they became more interested in current movies, and I decided I finally had time for them myself. But my first visit to the nearest Blockbuster location became my last, as the store closed soon after my initial rental.

Soon, with the help of my youngest son (who has the family’s biggest appetite for culture and entertainment), I discovered streaming video. I decided to try Netflix, as its monthly price was below the typical expense of a movie ticket. Since then, we have viewed some movies on DVD, but mostly watched television series and full-length movies through the streaming option. So, when the email about the price increase came, the decision to drop the DVDs was straightforward, based on actual usage rather than predictions of future habits.

Possible Glitch: Cost of Bandwidth

The cost of a subscription to Netflix or a similar service is just one component of a total entertainment package. Expenses for over-the-cap usage of bandwidth can also increase, as Internet service providers move to change how they bill Internet usage (even as they insist that few customers will be affected). Likewise, those who stream movies to mobile devices may see higher costs associated with limited data plans.

For now, bandwidth issues may not be a factor affecting expenses. But as consumption-based billing or usage-based billing becomes more prevalent, overall expenses will rise and decisions will become more complicated.

More Entertainment Options

Having been new to streaming content specifically and entertainment options in general, I didn’t realize that there were so many choices. According to a Wise Bread post on ways to watch TV and movies without cable and a recent article by Consumer Reports on Netflix alternatives, consumers have plenty of choices. Both sources mention Amazon Prime, which offers free access to thousands of titles as a benefit to its flat-rate membership program for free-and-fast shipping of Amazon.com orders.

Even more options for entertainment via DVD and/or streaming:

  • Watch streaming movies on a pay-per-view plan, rather than unlimited option (great if you watch occasionally)
  • Switch back and forth from streaming-only to DVD-only plans in order to view movies from both categories
  • Rent DVDs at the library (DVDs are free at my library, but the selection is limited)
  • Buy and swap DVDs using PaperbackSwap's sister company Swap-A-DVD (I have used Paperback Swap, but not the DVD service)

Did the recent Netflix price increase affect you? What is next for you in terms of movie viewing?

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Guest's picture
Rachael

Frankly, I've always considered Netflix's prices way too low, especially considering the fact you could watch 24/7 streaming (not that I ever would but sometimes I have watched a whole series of a newly-found show in a few days which is priceless). We plan on keeping both the DVD and streaming option, though I do like the idea of switching between the two for people who want to economize.

Julie Rains's picture

I agree that the pricing itself is not necessarily a deal-breaker. But it may prompt many people to consider other options, depending on how much they use the service.

What makes me concerned is that there were 2 price increases (small, then large) in less than a year, making me wonder if future price increases may be in store or service cut-backs.

Guest's picture
Candice

I have been trying to decide what to do about the price increase, too. Frankly, I'm a new subscriber and this has definitely shaken my trust in the company. I can get most of the same shows I watch streaming on Hulu, and with the price increase, the DVDs I want to see would pay themselves off if I just bought them (and then I could watch them over and over until the DVD goes out of style.)

I use paperbackswap.com on an almost daily basis, and I have used swapadvd.com on several occasions. They are both fantastic, but swapadvd could benefit with lots of extra members posting dvds, as the waiting lists for TV series can be fairly long. :) But still, it's almost free DVDs - who can complain about that?

Guest's picture

Although the price increase may be hard to swallow for some and they may need to choose between the two, I believe Netflix is still a good value. I've written about it on my blog.

Guest's picture
Nate

Julie,

Our situation is quite similar to yours and some of the same reactions with Netflix's recent announcement. We don't catch a lot of movies at the theater because of kids, schedules, etc. so we've relied on the comforts of home more with Netflix and Redbox to enjoy a show. As it is, it's not uncommon for us to receive a DVD from Netflix and let it sit for a few days until we can watch it.

There's been quite a stir and debate about Netflix changing the price. It's a tough sale to raise the price 60% without adding any added benefits or value. We've gone back and forth a bit too with what plan. Streaming is intriguing to us for the exact reason you mentioned--convenience, having it right there at your fingertips. And yet, the DVD system has a better selection, though it's a little slower relatively. I get the feeling that Netflix is trying to move to the streaming and possibly do away with or reduce DVD's, but maybe not.

Our thought now is to go ahead with the DVD selection because we're not going to pay for both services. I have heard of some that are so outraged by the move that they are talking about canceling Netflix altogether and using the other services out there.

Guest's picture
Guest

We're going to dump Netflix DVD-by-mail when the pricing changes take effect. Between streaming and Hulu and (ick) over-the-air we've got enough to watch. At $12/mo for a two-disc plan we can afford to buy a new-ish movie a month if we want to watch something repeatedly.

We're also considering doing what you suggested: switch to DVD-by-mail for a couple months occasionally. Not sure yet. I never thought cancelling cable would be so painless, so I'm hoping we won't even notice Netflix DVDs are missing when we cancel it.

One thing is for certain: Netflix is going to have a LOT of assets sitting around doing nothing come September. They're stocked for their current customer base it seems (I don't have delays getting discs, etc), but if that customer base drops 10% overnight, they're going to have a lot of waste facility and and labor assets that aren't necessary anymore. Which is bad for them because they pay heavily up-front for those assets, and they won't realize the full benefit of them.

I hope Netflix isn't shooting themselves in the foot here, but I'm not going to support their foray into premium pricing. They're creeping into basic cable cost right now, and this is a bad time to try to convince consumers to add "another cable bill."

Julie Rains's picture

You've mentioned some concerns from a business perspective that I think may eventually affect the Netflix service: 1) Does the company have an infrastructure that it can't support? (Making two price changes so quickly makes me think that they don't have a good handle on operating costs or customer patterns; or maybe Netflix was testing resistance to price increases with the dollar increase in November, before the big announcement later); 2) Did the company realize that the pricing went from basic services at a nominal cost to pricing that people have to consider more carefully? (not being able to anticipate or sort through that issue before initiating a price change makes me wonder about the management's thought processes makes me wonder also).

Anyway, figuring out costs for movies, etc. is a moving target, as charges and deal structures change. It is good to think about multiple options, as you mentioned. Thanks for your comments.

Guest's picture
Guest

Netflix streaming + Redbox for DVDs. You may not get to hold onto the DVD for quite as long, but $1 for the night isn't bad if you can remember to return it.

Guest's picture
KarenJ

As two middle-agers, we purchased a Netflix subscription so as to avoid the high prices at the movie theater. Part of our decision was related to the value that the subscription provided, and the option to stream a movie on a rainy or snowy weekend if we had already viewed our DVD. Since I'm not willing to pay double for the service, we have discussed and will get DVDs only since we are more interested in seeing movies that have recently been in the movie theater. We will miss the streaming option, but we also have Comcast which lets us do that, so if use it occasionally, it still won't cost the same as the full subscription.

Guest's picture
razorbacks92

I will likely keep both versions for now. I get blu-ray discs and we manage at least one a week. My husband is a movie fanatic, and he doesn't care if it is a b movie or not. Plus, I love the documentaries and foreign films. We never go to the movie theater because of the expense and for the price you rarely get in a movie where no cell phones ring, etc. Plus we dumped cable entirely and are saving a lot of money from that.

Guest's picture
Guest

For my wife and I we plan to keep both streaming and DVD. However, Time Warner will see their revenue decrease as we are reducing cable to the basic package. We watch Netflix way more than cable.

I may go back up next summer when the TDF is on. I will drop again at the end of July.