Netflix may have bet too heavily on digital media, discounted DVD staying power

image54[1]Netflix recently caused a stir when it decided to split its formerly-all-inclusive, DVD-rental-plus-streaming subscription fee into two separate subscriptions, effectively nearly doubling the price to those who wished to continue both streaming and receiving DVDs. A number of Netflix subscribers have been up in arms over this change.

Gizmodo points out that this shows demand for DVDs is still tenacious—perhaps more so than Netflix expected when it bet so heavily on the streaming future. It costs Netflix as much as 75 cents each time it rents a DVD through the mail, while it may only cost 5 to 10 cents each time it streams a movie. Netflix needs to cut its costs while raising revenues—while it’s cheaper to stream a movie once Netflix has it, licensing films is proving costly.

It’s a bit ironic—in the past I’ve written that Netflix got the jump on Blockbuster by betting heavily on the streaming future from the very beginning. (And indeed, in October 2009 David Rothman linked to a blog post (which is, unfortunately, no longer available) about Netflix’s CEO claiming DVD only had two years left.) But now it looks like Netflix may have overestimated its customers willingness to call rather than fold on that bet. Of course, the fee hikes may help Netflix, by driving away those who only wanted DVDs, increasing the fees paid by the ones who remain, and eliminating DVD costs altogether for those who move over to streaming. And perhaps this will lead to Netflix being able to add more titles to its streaming library.

Regardless, this should also be a lesson to e-book vendors about demands for old versus new media: much as consumers seem to be flocking to e-books now, there will still be a significant demand for printed books well into the future.

3 Comments on Netflix may have bet too heavily on digital media, discounted DVD staying power

  1. The reason I originally got Netflix was to have access to all those movies and tv series on dvd. The streaming is lovely, too, but I have no control over it. Things come and go. I am one of those who knows what I want to watch ahead of time, I don’t just browse for any old thing. Thus I will hang onto the dvds even if I have to drop the streaming.

  2. I’m a LONG time Netflix subscriber. Their core service is still DVDs and BluRays via mail as far as I’m concerned. Streaming is great in theory and we have made use of it on occasion. But the quality of the available content is abysmal. When the customer thinks to himself “hey, I wonder if that is available on the streaming Netflix” and then, 98 times out of 100, it isn’t; at that point, the customer will probably just give up on streaming. The problem is that every media company and content owner is trying to monetize their holdings. So they just aren’t licensing much of the good stuff to Netflix. Streaming could be a great deal for everybody but if it gets too expensive or if the content is fragmented between a bunch of different services it simply stops being worth the hassle.

  3. Preston DuBose // July 18, 2011 at 10:01 am //

    My cost went from $15/month to $20. I still think it’s a great entertainment value. I’m not ready to give up DVDs, but our family uses streaming A LOT. They don’t have much in the way of recent movie releases, but they have a ton of shows for kids. We can stream to the XBox in the living room or an iPad via wifi anywhere else in the house.

The TeleRead community values your civil and thoughtful comments. We use a cache, so expect a delay. Problems? E-mail newteleread@gmail.com.

wordpress analytics