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With studios clamoring for a larger piece of the action as Netflix’s subscriber base dramatically increases, it’s a good bet that the company’s sweetheart content deals are a thing of the past. Analyst Michael Pachter believes that any savings Netflix realizes from a lessening reliance on its by-mail service will be more than made up for in drastically increased licensing costs.

According to Pachter:

“When we sum up all of the likely deals, we can only conclude that Netflix’s cost of streaming content is likely to rise dramatically . . . Many of our competitors have assumed that postage savings would exceed the increase in content costs, and we believe that such an assumption is patently wrong.”

As current deals expire, Pachter expects Netflix to be forced into content deals several times the size of those in the past. Pachter bases his assessment on recent Netflix deals with Epix and Disney.

Pachter also says that though Netflix positions itself primarily as a streaming company now, rentals of new release DVDs through the service are holding steady. Says Pachter:

“The striking thing about this analysis is that it reveals that the new-release DVD rental is relatively unchanged since the advent of streaming . . . This makes eminent sense, given that streaming content is, at best, available one year after release on DVD, and suggests that streaming can be a substitute for most catalog DVD rentals, but cannot be a substitute for new-release DVD rentals.”

If Pachter is right here, how much of these increased content acquisition costs will Netflix be able to absorb before passing them along to customers? At what price point does Netflix suddenly become less appealing to you, Insiders?

(via Home Media Magazine)

8 Responses to “Netflix’s Content Costs to Reach Nearly $2B Next Year?”

  1. Member [Join Now]
    chuckimus

    It becomes much less appealing at higher than the cost I’m already paying for one DVD out at a time + streaming.

  2. Visitor [Join Now]
    Joe Schmuck [visitor]

    Does not bode well for Coinstar either, who claims to be entering the streaming business in 2011 as well.

    • Visitor [Join Now]
      dillyclm [visitor]

      Coinstar has always said that it would rather partner with someone already in the streaming business, than going at it alone. I think that they figured out a long time ago that streaming would be to much of an gamble to leverage their physical disc business model. If I’m a investor I think this just may have added a few more years to Redbox’s business model. Not only will Netflix have to pay for content, Comcast is asking them now to pay for the bandwidth they use for streaming their movies. I’m thinking the stock futures will not be so bullish after this news.

  3. Visitor [Join Now]
    tinybrat [visitor]

    I currently pay the $7.99/mo for streaming. I’m just waiting for the price to go up, I’ve been hearing rumors of $12.99 and $14.99/mo for streaming only, and all I can say is, if it goes up past the $8 it is at now, I will cancel. There just isn’t anything decent on it that I really care about anyway. Its just a nice side dish to have, but at more than $8, I will forego it.

  4. Visitor [Join Now]
    Consumer [visitor]

    I think what you will see is “Streaming” priced like the DVD plan. 1 device for $7.99, 2 devices for $9.99, 3 devices for $11.99 and up. Then if you want DVD’s with each plan add $2 more per DVD and $3 more per Blu-ray.

    So if my family wanted 3 devices to stream and 2 DVD’s, the cost would be $15.99 per month.

    Which is still a tremendous value if you ask me.

  5. Visitor [Join Now]
    aiden [visitor]

    what is the deal with this gold membership?

  6. Visitor [Join Now]
    whatitsworth [visitor]

    Well unless they change the time for releasing new content out to streaming from DVD (which they probably will not, so others will make the most money in their market) I think they have already reached their “target price” point that most people will pay for streaming older content. They are trying different angles for more income possiblilities on the streaming side such as these above mentioned tiered plans for streaming to multiple devices. At the end of the day (at least for me,) do I really want to pay extra to stream “older content” to different devices???? Probably not, because I’ve been a customer for just a couple of months and I’ve already exhuasted my streaming choices for things that interest our family. That’s why I still need to DVD option to get something “newly released” Patchter is probably correct in saying that unfortunatley the old deals with the movie industries will expire and they will want more as common sense dictates…. The price will probably be forced down on the streamers, but I think they will see alot of people fall off including me because I don’t think it’s worth much more than we are currently paying.