As many of you know, Netflix is raising its rates:
Whereas subscribers could formerly stream an unlimited amount of content and have one DVD out at a time for $9.99 per month, the cost would now be $15.98 per month. Each option would be charged at a rate of $7.99 individually.
If subscribers wish to have a second DVD out simultaneously, the rate increases to $11.99 per month, or $19.98 when combined with streaming. Current members would see the increase beginning on September 1 unless they take action, while new members would pay the increased price immediately.
And it is a great deal. And Netflix is not being unreasonable here. And I still question whether or not this is a good move. Why? Because the customers this is most likely to turn off are the high-margin ones. The people for whom this is a great deal are the ones most likely to utilize the service the most and cut into the profits. In the past, Netflix has been known to throttle heavy users on this basis. This was particularly true when it came to DVDs, where each disc transaction cost a lot. But it’s also true, to an extent, to streaming.
My father is on Netflix’s cheapest plan. He watches maybe one or two movies a month on disc, tops (some months he watches none). Then, maybe, a handful online. He is costing Netflix very, very little. And he is precisely the type of customer that this is going to turn off. My father is not a dramatic man. He may pay the piper, but it’s more likely that he will go without the discs or without service altogether. This, I’m pretty sure, will pass the “trivial expense” threshold where he has to start asking how much he’s using this service. This is precisely what Netflix does not want him asking. And the argument that “it’s cheaper than cable” holds no sway, because sports are on cable. And trying to explain Hulu+Netflix to Mom is not worth the effort.
So while Netflix remains a great deal for people that love entertainment (but not sports), and are computer-savvy (but don’t use BitTorrent), there are a lot of people that this does not describe. I doubt that it’s the case that 41% of customers are really going to drop Netflix, but it will be a non-trivial number. And some of their least expensive customers, at that.
On a humorous note, Blockbuster is reaching out to Netflix customers. Dissatisfied with Netflix’s prices? We’ll match them! Except we won’t offer streaming if you ever want to try it again, and if you ever cancel membership for a month, you’ll be back to our more expensive pricing.