Something You Won’t Like, Netflix Announces Price Changes

Let cut right to the bad new, Netflix is going split their unlimited DVD and streaming plans into two distinct services…and if you plan on keeping them both you’ll have to pony up 60% more per month.

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. 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. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering. Reflecting our confidence that DVDs by mail is a long-term business for us, we are also establishing a separate and distinct management team solely focused on DVDs by mail, led by Andy Rendich, our Chief Service and Operations Officer and an 11 year veteran of Netflix.

Now we offer a choice: Unlimited Streaming for $7.99 a month, Unlimited DVDs for $7.99 a month, or both for $15.98 a month ($7.99 + $7.99). We think $7.99 is a terrific value for our unlimited streaming plan and $7.99 a terrific value for our unlimited DVD plan. We hope one, or both, of these plans makes sense for our members and their entertainment needs.

So the question a ton of people will ask is why, and it seems the increase may have to do with contracts Netflix made with the studios back in 2008 (from http://blog.moviefone.com/2011/03/15/netflix-future-contracts/”)

When Netflix made their streaming deals with the studios back in 2008-2009, they were all made for a three-year period. The first wave of those partnerships expires later this year, and it’s safe to say that Netflix will not be getting a sweetheart deal this time around. Studios like Starz want “pricing parity” in a new contract, which means Netflix will be paying what the pay-TV networks are charged to air the same titles. To put it in perspective, Netflix got the Starz streaming deal for $30 million. Epstein explains this was 1/20th of what someone like HBO pays. When this math is factored into all of the Netflix studio deals, it means the company is looking at paying over half a billion dollars more per year for the right to stream movies.

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