Editorial: Why Netflix Doesn’t Owe You Cheap Movies

     July 14, 2011

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Netflix is one of the biggest online success stories of the past decade.  After years of Blockbuster dominating the rental market, Netflix first entered the fray by selling a mail-order DVD selection that went far beyond what any single store could offer.  But their real triumph was when they began streaming their movies online and then expanded to hardware like TiVo, Roku, and gaming consoles.  Now they’ve moved into the mobile market and their streaming library continues to expand.  While cable companies and studios struggle to compete with their own VOD services, Netflix offers a variety and breadth of titles far beyond its competitors.

So I was shocked and dismayed when there was a backlash to the company’s recent announcement that they would be raising their prices.  Hit the jump for my explanation of why Netflix needs to charge more in order to stay competitive and to keep the massive streaming library that made it so popular in the first place.

netflix-envelopes-mailedThe previous Netflix plan allowed folks to have a $7.99/month plan where customers could get one mail-order disc at a time and unlimited streaming.  This is the plan I have and it will now go up to $15.98/month starting in September.  I will pay it gladly.  The new price comes from a $7.99 unlimited streaming plan plus a $7.99 one-disc at a time rental plan.  Since there are plenty of movies I want to see that aren’t on Watch Instantly, I’ll pay for both and it’s still a steal.

So why the sudden price hike and why is it so drastic?  Because the studios previously underestimated the value of streaming their movies and sold the licensing rights to Netflix for far less than the libraries were worth.  However, those licensing contracts are starting to expire and studios aren’t going to make the same mistake twice.  Furthermore, since some of the studios (or rather, their parent companies) have launched or are attempting to launch their own VOD services and may attempt to use Netflix’s subscription-based model, Netflix is no longer the only game in town.  This will lead to bidding wars over content and Netflix needs the revenue to make those bids and keep those licenses otherwise the streaming library goes back to where it started: loads of junk titles and public domain crap that wasn’t worth anything in the first place.

And no customer wants that, but how is Netflix supposed to pay to keep the service competitive?  Netflix did themselves no favors in their press release where they tried to make the price increase seem like a great deal for customers while neglecting to explain why the increase was necessary to keep the company competitive in the VOD market.  I imagine that a large amount of the outrage comes from ignorance of how the business of licensing movies works and perhaps if Netflix had said “Hey, you like the selection we offer in Watch Instantly?  Guess what: it goes bye-bye if we don’t have more money to pay for it,” (said in PR-speak, of course) then maybe customers would be willing to forgive the increase.

But even without the explanation, the outrage is baffling.  No one owes you Netflix.  If that $16/month is outrageous, then don’t pay for it and you won’t get movies and somehow you’ll mange to survive.  If you think there’s a better deal out there that offers the selection of Netflix for a lower price, then make the switch.  One day, HuluPlus may be a serious competitor but they lack the film selection of Netflix.  You can drop the DVD-rental aspect of your plan and go to Redbox or try to find a Blockbuster, but you’ll never get the massive selection that Netflix offers on DVD.

This article isn’t to shill for Netflix but to express my disappointment at those who think they’re entitled to what a great service offers and feel that a $9 increase is unacceptable.  It smacks of a culture where people want to drive on roads and have firefighters but hate paying the taxes that go to funding those public services.  Even in the private sector, if you don’t like what’s being offered then you can usually go elsewhere unless a company has a virtual monopoly like Time Warner Cable does in New York.  Netflix hasn’t shut out other streaming services.  They’ve just risen to the top of the heap and with good reason.  If you don’t think what they offer is worth the new price, then don’t pay for it.  But there’s no reason to get pissy about it.

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