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In Defense of Netflix

July 13, 2011
“If it seems too good to be true, it probably is [or in this case ‘will be’].”
Paying just $9.99 for access to both DVDs through the mail and streaming content seemed too good to be true. On common sense alone I knew that price point was far too low for access to media. It wouldn’t last. And now that Netflix are asking subscribers to pay $7.99 for DVDs and $7.99 for streaming content separately or combined, some people are frustrated, confused or downright angry. Trouble is, most of these folks have no idea why Netflix decided on these changes in the first place. They think it’s just another way for them to boost profits. And while that is partially true, movie studios and cable companies are the real culprits. Allow me to offer my opinion.
Many of these big movie studios, Comcast, etc. are suddenly recognizing that they can make more money off of Netflix by taking a hard stance when re-negotiating future streaming content deals. In other words the price Netflix pays to say, Warner Bros, is about go up. And because Netflix have an obligation to their shareholders, they aren’t going to just eat that extra cost. Of course they’re going to extend that to the customer. When gas prices go up, do station owners continue selling it for the old price? Of course not. They have to extend that extra cost to the consumer. If gas prices go up, food prices go up because it costs more for trucks to deliver goods. Do we call Safeway to complain?
Instead of selling gas, Netflix sells access to DVDs and streaming content.

The number of people who own gaming consoles has exploded over the last year or two as they’ve gotten cheaper (you can buy a used Wii for what, $100-$150?) or even in some cases FREE. It has driven extra traffic through Netflix and facilitated the need for change. When the consoles were still $300-400, Netflix could afford the fees it was paying to large studios because relatively few people owned one. That’s just not the case anymore. And not only are more people than ever streaming content at home; they’re also streaming content on their smart phones. The way we access media in our country has changed dramatically in just a few years. Studios are scrambling to find ways to cash in on that.

Long story short, I’d guess a good 3/4 of Netflix’s media costs were associated with DVD & Blue-ray content in the past. Why so much more for disc rentals? ..because the content is newer and access to newer content costs more. Which is why they’d been able to offer both streaming and DVDs for such a low price in the past. Studios weren’t charging much for streaming content because they didn’t recognize how successful it would be. They were focused on making money off of DVD & Blu-ray rentals. That ratio is probably closer to 50/50 now or it will be very soon.

So don’t blame Netflix. Blame studios such as Warner Bros., Sony, Fox, Disney, etc.

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