September 20, 2014

Why are you Surprised about the Netflix Rate Hike?

Image Credit: Wired

There has been a tsunami of hate that has been flowing towards Netflix with their announcement that they will be raising their fees on rate plans that include both streaming and DVD’s in the mail. In essence, Netflix has doubled their fees if you want to both stream and receive DVD’s as well.

I have read post after post, comment after comment blasting Netflix about this decision. People saying that they are leaving the service, that they have had enough and taking their money elsewhere. (Where might I ask?) I have seen people say that Netflix’s timing is bad because the economy is struggling.

My response? You are all insane to think that this was not coming.

Let’s take a look at the current state of affairs of content providers.

Blockbuster way overextended themselves with store openings, sinking themselves in debt with over saturation of brick and mortar in various cities. When I lived in Overland Park, Kansas, I literally had 4 Blockbuster stores within a mile of my home. Way too many, and way too much overhead for Blockbuster to maintain. Now, their mail-order service in my opinion was way better than Netflix. You could get two movies out at a time, then while you were waiting for new ones to come in the mail, you got coupons on your envelopes to go to a physical store and get free rentals. Pretty sweet! The problem with this model? The Blockbuster revenue model was built to rely on late fees, just like credit card companies. The company relied on people’s laziness to make money, and honestly, it worked for a long time. But then comes Netflix with it’s no late fees and pretty good catalog and amazing mailing times. The real beginning of the end for Blockbuster was when it did away with late fees, thereby killing it’s main line of extra revenue. Blockbuster being a persons main source of renting is now a thing of the past, being relegated to the newly released Blockbuster Express boxes that are competing with Red Box.  Did Netflix kill Blockbuster?  Yes, in a way, but Blockbuster’s CEO did that as much as anyone else with his rapid expansion plan that was way too aggressive.

Red Box is a great alternative, but you still have to physically go to a Red Box to rent a movie.  Now, for $1.00 you get a great value, and Red Box shows that companies other than Apple and Amazon are finally understanding the “Long Tail” economic model.  For my family, the closest Red Box is ten miles away.  If you live in a densely populated area, Red Box is a great alternative, but in rural settings, it simply is not yet.

Amazon offers movie rentals through Blu-Ray players and Roku boxes, which is very handy, but there is no all you can eat option.  The upside is that they do have the latest releases for rent and purchase via streaming, but they can be a bit pricey in my opinion.

Hulu?  Never used it.  Too much of a pain in the rear end.  Hulu-Plus?  Yeah.  Right.

So that leaves Netflix, who offers an all you can eat plan for streaming movies.  Albeit, a limited catalog for blockbuster releases, but a solid catalog for television shows that I would otherwise not get to see.  Also, they have an extensive children’s library for my kids to watch.  We have recently turned off our satellite television and gone strictly to netflix and movie rentals.  My kids have been happy with what Netflix offers.

Now, no one likes paying more for a service they are already getting, I concede that point.  But honestly, are you using Netflix for DVD rentals?  Does someone else offer an Android app (albeit limited and in need of hacking to get to work on most devices) that you can watch content on your tablet or mobile device?  We have not gotten a DVD from Netflix in almost a year, mostly because it is simply easier to pick up a current release when we are in town, or wait until one of our friends lets us borrow theirs.  I take issue with a lot of the outrage out there, because it simply does not make sense to me.

Bad economic times?  Guys, this is $7.99 a month we are talking for streaming content.  If this fee is stretching you, you have MUCH bigger problems than Netflix raising prices.  You spend more than that at Starbucks for their overpriced, burnt coffee from a hipster barrista.

Bad online catalog?  This one has some traction, but you need to look at the television series offerings which for Netflix is one of their most watched segments of their business.  They are deep, and have a lot of the hit series that are shown on pay TV.  Dexter, Weeds and others are on there, and are kept pretty current.  Heck, I watched Emergency from the 70′s the other day.  Pretty sweet.

I think people need to stop knee jerk reacting to this announcement and crunch the numbers of what they are actually spending a month on content rentals. For online streaming and one out at a time rentals it costs $15.98.  $6 more than the current $9.99 plan that includes both of those things.

Go back and look at your receipts for last month.  How many movies did you get from Red Box?  If you are like the rest of the country, you are averaging three rentals at a time, so you are halfway to the new rate hike already.  That leaves $3.  Rented a movie from a brick and mortar store last month?  Rented off the Apple store, Android Market, Amazon?  There is the other $3.

What people are upset about I think is that Netflix is taxing people’s convenience.  If someone does not want to wait for a new release that they really want to see to come in the mail, they run down to Red Box, because they can do both.  Netflix is trying to make it so that they are the one stop content provider out there.  Because really, is there anything else that really offers what Netflix does?

You will argue that yes, yes there is.  But really think about it.  Really crunch your numbers.  Couple that with the fact that as a Netflix customer you have helped to crush out other services like Blockbuster by mail.  The market has decided that Netflix is the victor, and to the victor goes the spoils so to speak.

Cancel your membership, by all means.  It isn’t going to hurt Netflix one iota.  Do you know how many devices are coming out with Netflix installed?  Blu-ray players, computers, Android devices.  You name it, you can get Netflix.  Their attrition rate is going to outstrip cancellations.

I am not trying to criticize you for your hate of a rate hike, I am just saying that perhaps it is a bit misplaced.  Think through the issue logically, and you will see, I think, that perhaps this makes sense for what you are already doing.  For my family?  We are going to stick to streaming only.  It makes sense for us.  Think it through and let me know what you think in the comments.  Let the flaming begin.

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