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My $1 Question for Netflix

By Stephanie Prange | Posted: October 13, 2008

Netflix last week decided to raise subscription prices for those who rent Blu-ray Discs.

On the surface, that seems reasonable. Blu-ray Discs cost more to buy than DVDs. Why not charge customers who want to rent those higher-cost discs more?

But when you consider that Netflix offers movie streaming at absolutely no extra charge, it brings up some interesting questions.

Why is the ability to rent Blu-ray Discs worth $1 more a month, when streaming — which obviously costs Netflix something in terms of server space, programming and IT — isn’t worth a penny more?

It may indicate the value Netflix — and by extension its customers — place on the high-def disc versus lower-resolution streaming. Or it may indicate that Blu-ray has a stronger market than streaming — one for which customers are willing to pay.

Also, it may indicate that Netflix, while straddling the packaged media and digital delivery line, is determined to compete in the Internet-delivery arena — even if it means subsidizing it while charging more for renting the high-def discs.

Netflix executives have said Blu-ray Disc rentals represent a very small part of their business. Why then are they charging this very small group of customers more? Why are they subsidizing the streaming customers?

For the most part, the inexorable trend for rental prices has been down, helped along by the ever-shrinking cost of DVD. During an extended price war, Blockbuster Online’s rental service and Netflix pushed the price of viewing rental movies to new lows. In that particular battle, Blockbuster finally blinked.

And now Netflix, too, is looking to hold the line on pricing and even raise it (at least on Blu-ray) — except when it comes to digital delivery.

I have to ask, though, if Netflix sets a precedent of giving movie streams away for free, how will it ever be able to charge for that service?

How will Netflix make money in the non-disc future when it has so devalued the very service upon which it hopes to base its new business model?

It’s the quandary facing many Internet movie delivery services, and it will face Netflix in the years to come.

User comments

Commented by
Posted on 2008-10-15 09:55:04

I think you're far too focused on now. Netflix has stated they believe the future will be video downloads. Most companies know downloads are the future. Like any other market, brand recognition goes a long way. You start people on your brand as early as possible. Netflix wants to be the first major player in the video streaming market. And while they offer it for free now, it won't be in the near future. As quality improves and more devices are available that allow you to watch the movies on your TV, their brand will be the one people know. I assume you believe their disc rental service has merit. Which do you think is cheaper, mailing disc all over the country and huge warehouses or servers. While you're thinking about that, keep in mind that studios say they make more off of a movie download than they do off of a movie disc sell.

Commented by
Posted on 2008-10-15 23:33:05

First of all, NetFlix has been charging $1 extra for Blu-Rays for a while now. At least several months if not longer. Second of all, the streaming movie service is not being given away "free," it is included in the cost of the monthly plan. This is why each monthly plan for additional DVD/Blu-Rays out, per month, cost extra. The consumer is your friend, not your enemy, and you will not be making very many friends writing an article that denounces the specific thing that many people purchase NetFlix for. Finally, if you had done your research you would know that pay-per download type movie streaming ideas have been tried and failed. NetFlix knows it would lose a large portion of its customer based if they charged per stream or per download. I don't think you know anything they don't, over there. D- article.


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