The New York Times’ technology reviewer, David Pogue, talked to Netflix about the recent 60% increase of their DVD + streaming plan, and Netflix’s explanation is not what you’d think. Everyone thought their costs have been going up because the contracts they sign with media companies have been getting more expensive since streaming video has really taken off in the past couple of years. That’s not the case at all: Netflix’s costs haven’t changed much. Which makes you even angrier, right? Nothing in reality has changed in the past several months, but the price went up anyway. It’s like if Toyota suddenly decided to charge 32k$ for the Camry instead of 20k$. Not because the cost of producing it went up, but because they felt they could make more money.

Samsung Blu-Ray player with Netflix support

Apparently what Netflix wants is a paradigm shift away from the one they willingly introduced: “Free streaming. Awesome.”  It’s how you boil a live frog: put it in cold water, then slowly turn up the heat. First they had the DVD mailing service — this is how Netflix made it big — but no streaming. Then they introduced streaming. At first no one cared about it, because there was nothing worthwhile to stream and also, it was a pain: you either had to watch it on your computer or hook your computer up to the TV, which was then a pain to control. So because of that, it was free but limited to an hour per dollar amount of your bill (if you paid 20$/mo, you got 20 hours of streaming). But then they got a bunch of TV shows on the streaming side and got some set-top boxes (Wii, XBox, Blu-Ray players, etc) to support streaming and it started taking off. This was back when they cared about customers, so they increased their prices only a couple of bucks in exchange for unlimited streaming — awesome! They also added the 8$/mo streaming-only option which seemed nice of them, but which turned out to be the reason for the current price hike.

Photo by Andrew Magill

What that streaming-only option did was change the paradigm of what you were paying for: before, it was mainly a DVD at a time plus a poor streaming selection for 10$/mo; after, it was 8$/mo for a decent streaming selection plus 2$/mo for a DVD. So now streaming, which is hugely profitable for Netflix, took center-stage and the DVD service was just an add-on. And then someone made the following realization: “wait a second, people are only paying 2$/mo for DVDs, when they used to be paying 8$ for them! Go get ‘em, accountant dogs!” So they walked themselves (and us) down this road from DVDs costing money and streaming being free, to streaming costing real money and DVDs being cheap, to “well, they both cost real money.”

What’s even worse is that, as Pogue points out, they still don’t have real competition. Even with the price hike, all the other services are worse:

• Netflix: 1 DVD at a time for 8$/mo, unlimited streaming for 8$/mo
• Blockbuster: 1 DVD at a time 12$/mo, expensive pay-per-view streaming (a lot more expensive than Netflix)
• Hulu Plus: no DVDs, 8$/mo for unlimited streaming (same as streaming-only Netflix, probably worse selection)
• RedBox: 8$-9$/mo for DVDs, no streaming (assuming you only keep the DVDs for one night each, but you also have to go to and from the machine; on the plus side, if you don’t watch that many movies, the cost will be a lot lower per month)
• Amazon: no DVDs, expensive pay-per-view streaming — or 80$/yr (i.e., 7$/mo) for  unlimited streaming via Amazon Prime (more on this below)

So now their new price structure makes more sense: even with it, they’re still the cheapest, best option around. And they already have all your movie watching data and an excellent recommendation engine, which means they can make good suggestions for you to watch — something none of the other services can do. But they have still jumped the shark: it used to be Netflix was a no-brainer because they were cheap, had an excellent selection between the DVDs and streaming, and they were awesomely customer focused. Now they’re obviously just screwing customers as much as they can get away with (e.g., they took into account customer defection before the announcing the price hike), they’re not that cheap anymore, and their selection isn’t that much better. So what used to be an awesome company took a sharp turn for the mediocre.

For proof, the best value isn’t even their 16$ 1-DVD + streaming plan; instead it’s their 8$ 1-DVD plan + Amazon Prime‘s 7$ streaming plan for 15$. That’s the new no brainer because on top of the cheaper unlimited streaming, Prime also gives you unlimited free two-day shipping with no minimum purchase. If you buy 3 things a year from Amazon and save 4$ at a time on shipping, that’s another 1$ off every month: now it’s 2$ cheaper than Netflix. And you get your stuff in two days. And you still have Netflix, so you can still rate movies and get its good recommendation engine. And Prime video is available on the TV via a bunch of Blu-Ray players. What’s available via streaming is an open question, and it would be nice if someone made a comparison between all of the different streaming services’ selections, though Amazon likely has one of the better libraries.

But at the end of the day, this move by Netflix definitely means the end of days for dirt cheap streaming. On the bright side, for people that only care about either streaming or DVDs — but not both — your price just went down 2$/mo, so good for you.

Via The New York Times