M+E Daily

On Netflix’s Price Hikes

A little more than a month ago, Netflix content chief Ted Sarandos conceded at an investor’s conference that there were “a lot of markets that are terribly underserved for DVD rental, and [that] don’t have the kind of broadband speeds yet to backfill with streaming.” Accordingly, Sarandos said, Netflix would be “putting a little bit more of a focus” on disc rentals in the near future.

Who could have guessed from Sarandos’s comments that Netflix would soon split disc rentals and streaming access into separate subscription plans, in a move to contain the costs of maintaining physical distribution operations?

The bifurcated subscription services have irked customers, none of whom want to hear how streaming rights to hit movies and TV shows are only getting more expensive for the company. Those who currently subscribe to Netflix’s $9.99 streaming-plus-DVD plan admit that disc rentals are a rarely-used, but nice-to-have option — especially given what some characterize as a spotty streaming library (via ). Faced with a 60 percent price hike for both services, more than a few DVD-plus-streaming subscribers have threatened to cancel their memberships entirely. That could bring new customers to Redbox kiosks, argues one analyst (via the New York Post). Rival streaming services, such as those from Amazon and Hulu, could see upside as well.

Consumer outcry to higher prices is hardly a surprise. But at the time of this writing, “Dear Netflix” was trending so high on Twitter that HBO had piggybacked on the publicity with a promoted tweet for its own streaming offer, HBO Go. More on the social network backlash and its ramifications at Seeking Alpha.

In any event, Netflix’s “graceful degradation” strategy for DVD is now apparent. The “gracefully degrading” term comes from the company’s announcement in mid-June that it would no longer support third-party apps that enabled subscribers to manage their DVD rental queues. (Netflix’s own app allows subscribers to manage their streaming queues only.)

Investors, for their part, seem to have applauded Netflix for the price changes, as well as for the company’s renewal of a TV-show streaming deal with NBCUniversal. Netflix’s stock price topped $304 per share on Wednesday (via MarketWatch).