Netflix: Is It Worth the Price Increase?

    August 5, 2011

Before last month, Netflix was loved and praised. Although it wasn’t perfect, it was still considered a great service for a really great price. This dynamic, however, changed when the company announced some major changes to its pricing structure last month.

In summary, the changes did away with the joint streaming and DVD subscription service and made each service its own at a rate of $7.99 apiece per month. For users that had the joint plan, they will have to pay 60 percent more if they want to keep the same services.

Have you decided to drop Netflix or at least part of the service? Let us know.

According to Bryan Gonzalez, the director of Social Media Labs at the Entertainment Technology Center at the University of Southern California, a lot of people are trying to determine whether or not they want to keep both the streaming and the DVD services. Other users have said that they are dropping the Netflix completely.

It seems clear that Netflix’s action was a step toward moving away from DVDs. Although video streaming is still a very young industry, the company didn’t want to get left behind like Blockbuster did. There was also an obvious financial motivation, because, as Gonzalez explained, the company would have to have a lot of cash in order to obtain all the high quality content that it wants distribute.

The user reaction to the news was quite loud, from what we could tell, but Netflix CEO Reed Hastings apparently thought otherwise. In the company’s recent earnings call, he said, “Believe it or not, the noise level was actually less than we expected, given a 60 percent price increase for some subscribers.”

Gonzalez told us that he thinks Hastings was trying to be optimistic about the situation. It is, however, worth noting that a recent report from The Diffusion Group found that even though 70 percent of users were disappointed by Netflix’s price hike, only 12-15 percent would actually cancel their services.

“The fact that there were so many Netflix users that were upset, kind of really proves to you how much Netflix is really loved, or at least used,” Gonzalez said. “Truth be told, Netflix is still a pretty good deal compared to all the other offerings out there.”

If users do decide to jump the Netflix ship, he pointed out that there were other alternatives for them such as Amazon Prime or pay per view models like Apple iTunes or Vudu, Walmart’s new streaming service.

“The positive news for consumers, and everyone, is that there are tons of options out there and maybe this will expose the market or the user to this great market of content,” he said.

Gonzalez believes that there are other players that could benefit from Netflix’s move as well. For instance, any company that is trying to figure out how to distribute content could take this as a learning experience. Additionally, he thinks that consumer electronics manufacturers who have TVs with built-in apps other than Netflix will have more streaming opportunities as a result.

“I think, ultimately, a lot of companies will benefit, not just because it will expose users to more options, but also, users will benefit because they’ll move outside of Netflix and see what else is out there,” he said.

From the entertainment side of the business, it’s no secret that the studios are struggling to establish a business model around streaming. As a result, Gonzalex believes they are pleased to see Netflix and other players experiment with revenue models because “high quality content does demand a certain price.”