Netflix changes pricing structure, angers fans

July 14, 2011

Netflix on Tuesday announced price changes that add about $6 to the monthly bills of subscribers for unlimited streaming video and DVD rentals. Cecilia Kang reports:

Those services were together offered at $9.99 but are now being offered separately: $7.99 for unlimited streaming and $7.99 for unlimited DVD rentals (with one disc checked out at a time).

Previously, Netflix offered unlimited streaming for $7.99 with a add-on of $2 for DVD rentals.

The changes come amid a massive shift in entertainment, with more content being provided online. Internet service providers, meanwhile, are putting into place data caps that companies such as Netflix fearwill hamper their businesses.

The changes take effect immediately for new members and on Sept. 1 for current subscribers.

The company said in a blog post that changes were meant to accommodate subscribers who want to only subscribe to DVDs. That’s a change of pace Netflix, which has said in shareholder letters and conference calls that it was retreating from its mail-order DVD business as more consumers turn to the Internet for video entertainment.

“Given the long life we think DVDs by mail will have, treating DVDs as a $2 add-on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs,” wrote Jessie Becker, Netflix's vice president of marketing.

Becker said the online video giant is so confident that many of its 23 million subscribers will continue to want DVDs that it has created a management team for DVDs by mail led by Andy Rendich, the company’s chief service officer.

Its new pricing plans could drastically change its business. DVD-only plans could actually make that business disappear earlier. Streaming customers may be more inclined to give up their DVD services.

The DVD-by-mail service is much more costly than streaming. Postage, inventory and handling of DVDs are expenses that have weighed on the company’s bottom line.

On the other hand, as broadband Internet service providers end flat-rate data plans, the company may see users reduce how much video they stream from the Internet.

Customers unhappy with Netflix’s pricing plan changes are turning to social media to let the company hear all about it. Hayley Tsukayama reports:

On Wednesday, #DearNetflix was a trending topic on Twitter, as frustrated subscribers spoke out against the changes, with several threatening to cancel service.

Others said that the selection of movies on Netflix’s streaming service alone is not worth its own plan.

On Facebook, the company’s post announcing the change has more than 20,000 comments — and few of them are positive. Most take issue with the fact that the company isn’t adding services to justify its rate hike.

“Nothing like doubling your price and adding no value,” commented Facebook user Tim Smith.

CNET reported that several people seem to have “liked” the Netflix page only to share their displeasure with the company.

Yet while it’s understandable that people are upset about the changes plans, they may want to stop themselves from that knee-jerk cancellation.

If you do the math, the company still offers a unique service for a fairly low price. While the streaming selection is full of holes, if you’re watching more than a handful of videos per month, it’s still cheaper than renting one-time movies from Amazon or Blockbuster. Hulu Plus could give Netflix a run for its money with its identically priced $7.99 per month plan, but it also has holes in its streaming catalog.

And if you’re only interested in DVDs, then Netflix rightly points out that this is the cheapest option it has ever had for DVD rentals. Redbox doesn’t have close to the selection that Netflix has, and has no online presence at all. If you’re a power Netflix user, it’s still likely the best and cheapest option for you.

Where Netflix really seems to have fallen down is the way it has handled telling customers about the change, and how abruptly it changed its pricing structure. Across the Web, longtime Netflix users are saying that they feel betrayed by the company.

“I found out about this on Facebook a full 18 hours before I got an e-mail about the upcoming changes to my account from Netflix,” wrote one commenter dcn8v on my colleague Cecilia Kang’s post about the change. “That, in my opinion, is completely unprofessional.”

News about the new subscription plans caused movie-lovers to reevaluate their choices on how they watch and rent movies. Hayley Tsukayama reports:

What’s the best option for you? That depends entirely on what you want from your video rental service.

Netflix: In case you missed it, Netflix is separating its DVD and streaming plans into two plans that start at $7.99. It previously offered streaming and one DVD at-a-time per month for $9.99.

It’s a blow to movie-lovers who like the instant access to streaming but also order DVDs to fill in the holes in Netflix’s streaming catalog. Netflix also has the disadvantage of getting late digital access to new releases. If you’re mostly using one or the other, however, the pricing changes are probably no big deal.

Blockbuster: Blockbuster, apart from having an ever-dwindling amount of brick-and-mortar stores, also offers a by mail service and an on-demand online service.

The by-mail service gets you one movie or game at a time for $11.99 per month, two discs for $16.99 per month or three discs for $19.99 per month. Online rentals start at $1.99 and are available the same day as the physical copy comes out — a leg up on Netflix — and you have 30 days to start watching any movie you rent. Once you’ve started watching a movie, you have a 24-hour window to watch that movie as many times as you want.

Even with its perks, Blockbuster isn’t priced competitively with Netflix, however, especially if you’re a mostly streaming-video watcher.

Redbox: Redbox, also known as those vending machine-like dispensers in places such as WalMart, McDonald’s and your local grocery store, offer $1-per-night rentals for movies and games.

But there’s no online streaming with Redbox, a delivery method that’s becoming more and more popular, particularly among younger users. The most online interaction you get through Redbox is the ability to reserve a movie to pick up — hardly competitive for power Netflix users.

Amazon Prime: Amazon offers $79-per-year commercial-free access to about 5,000 videos, as well as other perks such as free or discounted shipping. Amazon offers a free two-week trial, if you’re interested in trying it out.

Amazon also offers one-time rentals that start at 99 cents, or you can purchase a movie and download it to your device.But if you’re a DVD watcher, Amazon doesn’t offer you the physical discs by mail.

Hulu Plus: Another digital-only offering, Hulu Plus has a competitive price point with a $7.99-per-month plan that gives you access to current season episodes of popular TV shows plus an impressive backlog of television and movies.

The main downside to Hulu is that it has ads, something that irks a lot of viewers. It also doesn’t have the same extensive movie catalog that Netflix does, though it does have the Criterion collection.

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