Netflix’s Latest Pricing Increase Proves They Want To Exit The DVD Business

While Netflix won't admit it, and in fact says the opposite in their blog post, the latest pricing hikes by the company is a clear sign that they want to exit the DVD business. While they want us to believe otherwise, Netflix is smart enough to know that you don't raise rates by 62% and then expect to retain a large portion of your subscribers for that particular service.

Netflix clearly wants to take the money they will no longer have to spend on DVDs and use it to license more streaming content. And if by chance you do want both streaming and DVDs, Netflix is fine with that because as much as they would like to be a streaming only service, they have raised the monthly price for DVDs by a large enough amount, $6 a month, that they will make money off of most users that keep the option. In my opinion, this latest move by Netflix shows they are no longer in touch with the reality of their current streaming offering and its lack of content.

While it's nice to think that we can all move to a streaming only plan, Netflix knows very well that many seasons of shows are only available via DVD. So you could watch all the episodes of seasons 1-4 of Psych via streaming, but the final season is only available via DVD. If Netflix was trying to force all of us to streaming only plans and they had their entire DVD catalog available in streaming, fine, but we know that is not the case. Netflix has not increased the volume of their streaming content by much and having 25% or less of their entire DVD catalog in streaming is not going to cut it.

Netflix can spin this any way they want, but the bottom line is that they simply want to get out of the DVD business as fast as possible so they can take that money and use it to license more content for streaming. And with Netflix launching a streaming service in Latin America sometime this year, the company needs to license a lot of in-country content since a good portion of the content licensed for the streaming service in North America is not relevant to the Latin American market. As a result, Netflix's licensing costs are going to skyrocket and they need as much money as they can.

But forcing users away from getting DVDs in the mail only weakens their streaming service since Netflix's real value comes from a dual combination of streaming and DVDs.

  • Roy Francis Stewart, Logos Solaris Entertainment

    I agree with most of this but would like to expand in context. We are moving ever more to an all digital world as in the case within the publishing world. Most every physical and online book seller has their own ereader device, however, there are those who still prefer an old paperback they can take to the beach and not worry about getting sand into or onto it.
    In 1999 when Netflix hit the scene,they had a unique service for DVD rentals and certainly could not predict the proliferation of digital platforms and devices in 2011 for they didn’t exist then. But obviously they adjusted to the times with offering movies available for digital download.
    An analogy would be to go back to the days when record companies released music on vinyl. At that time could they predict digital downloads of songs to portable devices? No. But they adjusted to the current rage and evolution, CD’s. Then they had to deal with the peer to peer free file sharing sites. Luckily Apple did provide a solution, with digital downloads available through their store. It aided them but didn’t kill them and CDs still sell as many consumers still like to have physical media as in the case with books above.
    What is exciting from the P.O.V. of a content creator is to witness the development and switch over more and more to an all digital world and especially what’s exciting is the “cutting of the cable” and the fact that TV’s themselves are becoming internet connected. Digital Cinema in movie theaters is expanding as well. All of this on the grand scale is empowering consumers and giving them choice. To watch what they want to watch, when and where they want to watch it.
    Back to business 101. I’m sure Netflix and others are adapting to this grand shift. Their pricing change probably is a result of their own preparation for empowering consumers with giving them choice. Their pricing should reflect that whether per item cost or via subscription. Example. If you want to rent a movie digitally, it’s say $3.99. To own, $14.99. You want to rent a physical DVD, $4.99, to own, $16.99. Choice.
    Personally, I feel that Neflix is making strategic moves and preparing for original programming. I read in the Hollywood reporter about a major actress who is in talks with Netflix to star along with actor Kevin Spacey in an upcoming original series enttiled “House of Cards”. This is to be directed by David Fincher, the director of the feature film, The Social Network.
    Cut to Business 102: The grand grand scheme is that what’s happening now is not about old media to new media or analog to digital; physical media to digital media or streaming media it IS a shift from technology to CONTENT. CONTENT and content development is the shift and companies across the board (search engines, estores, software companies, etc.) are preparing and making swift sweeping moves to execute that including creating their own, emulating the traditional incumbent Hollywood Studios. The GOLD rush is on. Be ready.

  • Abhinav

    IHMO Netflix really wanted to reduce the number of online streaming customers. This would allow them to bring back Sony via the Starz deal. I suppose there were plenty of DVD only customers who had streaming included in their plan but did not use them. This would remove such customers which will eventually benefit streaming only customers. However Netflix could have made easier on some customers by including a bundling discount.

  • Nick

    Netflix’s streaming-only library is weak relative to their DVD library, so while I do enjoy the connected experience streaming Netflix on my TV, I am not going to pay a premium to watch B grade zombie flicks in addition to my first run Showtime and HBO series. This new pricing change has forced me back to DVD-only. If I have to choose which service I am going to pay for, at least with the DVD service I can watch what I want to watch. If I want to stream something I will use VUDU or iTunes.

  • I’ve had netflix since they started. I’m fine with streaming, but they don’t offer on streaming what they do for DVD’s. If they put it all on streaming, there’s no problem at all.

  • nfl

    Good article, thanks.

  • Roy Stewart, Logos Solaris Entertainment

    I think it’s interesting that the gentlemen above, commenter NICK said “he’s not going to pay a premium to watch B grade zombie flicks” in his service. obviously, the Hollywood Studios (or any new Studio) has the movies and licenses them to the various services. it appears that may a service (‘m not going to automatically say Netflix) may get a few A titles but then may add alot of b or even c titles in the service. Nick is right, why pay extra for a service is you get a few great titles but mixed in with alot of B titles. it’s better to watch what you want to watch.
    Note in my pricings above in my first comment, the $3.99 rental and $14.99 to own is modeled right after Apple’s service which I have used with great enjoyment.
    The KEY thing to remember is that the Blockbuster retail stores are gone, AND it seems that the DVD mail rental business is fading away. REPLACED by digital delivery of titles on a VOD. As a new Studio as well as a viewer like Nick, I think PPV VOD via digital delivery is the way to go AND I believe is what will be the norm. if you really like the movie, you will also own it to collect it and build your own personal library. Will that be in the cloud?

  • scJohn

    Why is everybody assuming that the streaming rights, say Iron Man 2, are cheaper than what NF spent for the physical DVD. We just don’t know. Yes, the delivery costs heavily favor streaming over mail but we don’t know how the streaming rights compare to buying the physical DVD.
    If one assumes that the majority of these content deals takes the number of subs as a major component of what NF pays the content owner. Then NF could save a lot of money by offering a DVD only plan. If 10% of subs go for the DVD only plan then that’s 2.4 million subs per month that NF does have to send money to the content owners every month. Let’s say that 60% of the monthly 7.99 goes to the content owners. That’s 11.5 million less per month NF sends to the content owners.
    The real problem for NF is that the perception that NF was on the side of the consumer is now destroyed. As someone put it: NF is now just another cable company.

  • I think Netflix is stuck in the middle of the disk vs streaming transition. Streaming is the way of the future, but a lot of their content is only disk. We downgraded our disk plan from 2 to one because they don’t have enough new stuff we want to watch in either format. One of their business problems is that they are paying for licensing up front to an industry that is more interesting in protecting their virtual monopoly than they are to moving to a new business model.

  • i agree seems like netflix is trying to exit the dvd business

  • Hi there! Great information about Netflix. I’m currently setting up a site right now about the places where people can watch movies online. So what do you think, are people going more towards watching through online streaming and dvds will soon vanish?