Netflix Raises Rates Again: Business Model Has Serious Challenges Ahead

Today, Netflix announced that they are raising rates on monthly plans that allow customers to get unlimited streaming and one DVD out at a time. The plan which originally cost $9.99 a month will now cost $15.98 a month. In addition, the company is now splitting out streaming only plans from DVD plans and consumers can get an unlimited streaming plan for $7.99 a month, or one DVD out at a time for $7.99 a month. Essentially, Netflix is making people decide if they really want DVDs as part of their streaming subscription and if they do, requiring them to pay nearly $6 more for it per moth.

In November of last year, Netflix raised DVD plans between $1-$3 per month, depending on the plan you were in and now, only eight months later, they are raising rates again. This is a bad move on Netflix's part, but one that's not surprising as they look for ways to generate more revenue. With their licensing costs skyrocketing and the company aggressively pursuing more content deals for their expansion into Latin America, Netflix is feeling the pressure.

Now, they are forcing people like me who were paying $9.99 a month, to drop to a streaming only plan at $7.99 a month. That's $24 in revenue they are missing out from one customer, per year, and they are going to be millions like me who make that decision. Typically, I only got one or two DVDs a month, so Netflix wasn't losing money on me with the inclusion of DVDs in my plan. Now, when I want a DVD, I'll simply go to Redbox and get it for $1 a night. Forcing customers to go somewhere else for DVD rentals, when even Netflix admits there is still a demand for then, really isn't a smart move.

It was bad enough that Netflix gave in to the studios and agreed not to rent any new DVDs by mail for 28 days, just so the studios could force consumers to have to buy the DVDs instead. Now they are raising prices on DVD plans for the second time in 8 months and not increasing the selection and inventory of streaming only content fast enough or with content that's a lot newer.

In January of 2008, Netflix confirmed it had about 12,000 titles available for streaming. In September of 2009, ads on their website put that number at 17,000. Today, it appears that Netflix has about 20,000 titles for streaming, although Netflix won't confirm that number. If that number is accurate, it means that at any given time, Netflix has only added about 4,000 pieces of content a year for the past two years. That's not a lot of content.

Netflix is going to have a real challenge continuing to grow their subscriber numbers each quarter when they continue to give customers less for their money each month and make their plans less valuable.

Added: When logging into my Netflix account, unless I click on "your account" and then select "change plan", there is no notice that Netflix is going to raise my rate to $15.98 a month come September 1st. So unless you have heard of the news, imagine how many people are going to be surprised when they see their monthly fee change. Netflix should be highlighting this change to you immediately upon logging into their website.

Comments

[DC18]

According to this site there are almost 50k titles (if you count each tv episode as a title which is what that 20k number does. Also what Amazon does with their Prime title count)
http://www.thenowhereman.com/netflix/

[Riquin]

I just cancelled the streeming option. So I will only pay 7.99. Their streeming selection is not that good!!!

I think that was a bad move from their management.

That is their problem.

[RizingFenix]

When I started with NetFlix it was $8.99 a month. They just raised it at the beginning of the year to $9.99 per month. This rate hike follows too quickly on the heals of the last one and reflects their young and immature management team that doesn't know how to forecast, plan or budget. The board needs to cut the CEO and CFO and start looking for leaders with proven track records.

[Greg C.]

I'm canceling Netflix. I signed up for the unlimited streaming plan only about a month ago when I bought my WD Live hub. The streaming selection is so poor, that I had a hard time finding anything worthwhile released in the last few years. I ended up streaming from Blockbuster for $3 or $4 per movie, but without the monthly fee. Too bad, good concept but poor execution.

[Dan]

Hey Netflix, I suggest you reconsider your new pricing plan. As you say I have lots of options in entertainment. It would be a shame for you to go from making 10 dollars per month to zero. I wish you the best of luck in your business future in these tough economic times.

[Frank]

Hey Netflix what are you doing? You are pretty much forcing your members to change their subscription to steaming only. This would be fine if your streaming library was up to par which unfortunately it is not! I guess if I want to rent a newly released movie I'm just going to have to take my business elsewhere...like maybe Redbox. Not a very smart business move. Good Luck staying afloat!

[saintmica]

I'm not at all surprised that people are already complaining about the rate increase, but seriously- everyone is complaining about lack of selection on Netflix, and it appears Netflix is always fighting with studios and now even with Starz. In order to bring more content they need more money from the consumer. I'll gladly pay more IF they show signs of improving their selection and making headway with movie studios. I dropped my cable provider and save more than $100 a month by paying only $18 for Netflix and huluplus. Streaming media is a whole new market and the bugs need worked out but I absolutely cannot understand how so many people feel like they should get everything they want for free.

[Amber]

I don't want everything for free. I want what I paid for and originally agreed to. Hiking the price by 6 dollars a month is ridiculous especially when they just raised their prices less than a year ago.

[Josh]

August 31st has been renamed boycott Netflix day. On a poll on the street nearly 50% of Netflix users are signialing that they will be canceling the service.

[Chuck]

I never stream anything for a couple reasons but mostly because the selection is terrible. This is basically a price drop for me so I'm happy. I don't really get how people can complain about the selection and then complain that they'll have to pay for it. Don't pay for streaming and keep using the huge selection of DVDs/Blurays for LESS money.

[Bryan]

At a time when people are having it hard economically and trying to cut corners wherever possible I will peruse my options and see if I can find something better. I liked being able to stream a movie if even a not so great one because I no longer subscribe to cable. But now that this option is gone I'm likely to go somewhere else and spend my money, as little as it might be, if I can find a place that will allow me the option of streaming. Had netflix NOT done this I would never had bother shopping again.

[TJ]

Even with the rate raised, this is still a deal for me with the amount that we use it. An extra six bucks a month isn't great, but it's also way, way less than I would pay for cable.

I don't believe that 50% of Netflix's subscribers will cancel over the six bucks.

[nfl]

Good article

[Glen Hein]

I would use Netflix, but not until they stop using Silverlight and start supporting Linux.

[hd]

I, too am going to cancel. If anything else, just to send a message that they can't just keep skyrocketing their prices.

[Ray]

With this price increase for Netflix service Blockbuster seems like a better option. With Blockbuster by mail you can get movies, video games, and Blu-rays all in the same monthly rate. I really don't use streaming too much because I work for Dish Network and I have a Sling Adapter so I can get to everything that I record on my DVR through my phone. I like being able to use my HDTV for Blu-rays instead of streaming anyway. On a smaller TV or laptop you may not notice a difference, but on a 55" LED TV you can really see a difference in the picture. Right now Dish also has a promotion where you can get Blockbuster by mail Free for 3 months! So if you were thinking about switching services because of the price increase you can give Blockbuster a try for that period without having to pay anything. For more information on that promotion just go to http://bit.ly/lGG6HI and follow the instructions!

[Justin]

Late-comer to the discussion... When I first heard about the increase, I was furious and said I would cancel. But now I'm looking around, pricing things out, and examining the services provided.

Could I drop the streaming and instead go with Blockbuster OnDemand? I could, but then I'd have to pay per view. Two new releases, and I've spent more than the Netflix plan. Plus I watch a lot of older stuff (TV shows, movies, documentaries); and I'm not as anxious to watch new releases right away.

Could I drop the DVD plan and go with Blockbuster? Blockbuster's by mail subscription is more expensive than Netflix. Could I go with Redbox? Not if I want to watch not-as-new releases -- try and rent "Avatar" from Redbox and see what happens, let alone something older such as "Bringing Up Baby" or "The Godfather."

I think Netflix might have thought out this price increase more carefully than they have been given credit for.

[Woody]

We knew about the rate hike but because Netflix did not directly notify us that they were raising rates we cancelled the service altogether.

[Vortex]

I pay $8.00 A Month w/ nflx. Seems to be a pretty good deal seeing that I never have those idiot commercials to skip over that I used to have to do. Plus, I dropped my $90.00 per month Direct TV. To me, I'm in the black. But I suspect in a couple of years nflx will be around $60.00 per month for streaming....

[LED]

Thanks for the update, I'm a recent Netflix account user.