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Why Netflix Could Increase Pricing

Between its DVD by-mail and streaming services, Netflix has garnered a substantial share of the home video market in recent years. Along with Redbox, Netflix has decimated the once-unstoppable Blockbuster Video juggernaut and helped usher in a new era in the industry. Part of Netflix’s success is due to its affordable pricing, with monthly plans starting at $8.99 for one DVD at-a-time and unlimited streaming. Forbes has run an interesting article detailing the factors that could drive Netflix’s pricing upwards. Here are some highlights from Forbes‘ reasoning:

Rising demand for online content

“. . . According to an [online poll], 46% of 18 to 25-year-olds surveyed said that they spend the same amount of time viewing online videos as they do watching traditional TV. About 32% indicated that the computer is now their preferred platform for consuming on-demand video.

Netflix can potentially take advantage of this demand shift to raise its subscription prices. Netflix’s prices have room to rise because they are substantially cheaper than rates charged by on-demand competitors like Comcast.”

Improved content allows tiered pricing

“Currently Netflix is focused on bringing older movies and TV shows online. But if the company can license relatively newer content for download, it could justify a tiered pricing structure. In this case, customers would pay a premium to watch newer content. Tiered pricing, in turn, could drive growth in average subscription fee.”

If studios demand more profits, Netflix may have to pass on cost to customers

“In exchange for a 28-day delay in renting new releases, Netflix has been able to license online content cheaply. But . . . content owners are increasingly demanding higher profits. Over time, Netflix might be forced to spend more on content acquisition than it currently does. In order to protect its margins, the company would likely pass these increased costs on to customers, creating additional upward pressure on subscription fees.”

(via Forbes)

28 Responses to “Why Netflix Could Increase Pricing”

  1. Visitor [Join Now]
    will [visitor]

    Another obvious factor is that, having driven most of its competitors out of business, Netflix will be able to charge whatever the market will bear. To the victor go the spoils, in other words. Likewise with Redbox, which is already experimenting with higher rental fees in various markets around the country (as has been documented extensively here.)

  2. Member [Join Now]
    Cancun [cancun]

    And on top of all that said, there is inflation.
    Price is going up sooner or later. I would be cool for Netflix customers if the price increase is not major one.

    And this relates to a previous posting regarding the prices of stamps. Shipping cost are becoming more expensive.

  3. Visitor [Join Now]
    Firstlawofnature [visitor]

    I think both redbox and netflix have a great example in front of them right now on what can happen when confidence (and prices) jump too far ahead of customer expectations. Cheap prices created traction for both companies. The execs should think very hard about any price increase.

    • Visitor [Join Now]
      John Small [visitor]

      Price increases are the only way for Redbox to go. They will not survive without them.

      Netflix is offering a unique service at the moment and can likely increase their prices as well.

    • Visitor [Join Now]
      firstlawofnature [visitor]

      ‘They will not survive without them.’

      Another one of your facts?

      The only price increases that occur will be in your dreams.

      Netflix raised prices in the past and reversed them shortly thereafter. It was a mistake and they have been committed to lower prices ever since then. Lowering prices made their business model far more stable than most imagined.

      • Visitor [Join Now]
        rb [visitor]

        Okay,.. so I tried to think how Netflix can get around a price increase to offset a postage increase but I’m not coming up with an idea right now. HOWEVER, maybe Redbox could focus on getting their dvd rentals into the hands of more customers which would increase dvd rentals for them and help cancel out the need for a potential rental price increase. My idea: What if Redbox would sell coupon/promo code booklets for say $5 each. These booklets would be somewhat like McDonald’s coupon booklets that if you buy a $5 booklet, you get 5 coupons for $1 off each McDonald food purchase. Purchase a $5 Redbox coupon booklet and you get 5 promo codes for (5) $1 dvd rentals. To protect scams or fraud, the booklet/promo codes would be rendered useless UNLESS the promo codes are activated by the buyer of the booklet. This would work like how when you buy airtime for a tracfone. To actually activate the airtime, you need to call Tracfone or go online, punch in the number on your airtime card that you just paid for PLUS you need to punch in the unique purchase number received at the bottom of your store receipt. You only get the unique purchase number IF you actually purchase/pay for the airtime card. This prevents possible fraud or abuse as you need the unique purchase number/code to activate the airtime card. So, Redbox could sell their promo code booklets in grocery stores, or any where a Redbox kiosk is located! You buy one or many booklets, get a unique activation code on the bottom of your store receipt for each booklet bought, call Redbox or go online and activate the booklets/promo codes as described. This opens up enormous possibilities for Redbox. These booklets could be sold at fundraisers, people would buy them as gifts for others or include a couple of the ‘activated’ promo codes say in birthday cards, etc. Even sites such as Insideredbox could offer winning a code as a prize for different contests, etc. Redbox needs to think outside the ‘box’! More Redbox rentals in MORE hands=more $ for Redbox=Redbox able to keep their low $1 rental price=MORE Redbox customers! Win/win situation. Redbox doesn’t even have to add more kiosks or make other necessary accomodations other than providing the booklets to stores. Make the booklets available online or where Redbox kiosks are anyway and the Redbox kiosk service employees could just drop off boxes of the booklets at the stores when they service those store kiosks. Could even make the promo codes to be scratch off codes, much like instant lottery tickets , … this might help prevent code fraud if not add a little ‘excitement’ to revealing your code! This system would also work out well as it is not putting the responsibility of renting/returning/being charged for the dvd in the hands of booklet/code purchaser. It is still putting that responsibility in the hands of the promo code user because the code user still has to swipe his/her credit or debit card to actually rent the dvd. Okay FLON, I’ve given this a lot of thought so now you need to put my brilliant concept into the brains of Coinstar/Redbox so they can make their move on it before Blockbuster Express jumps on the idea! :-)

        • Visitor [Join Now]
          John Small [visitor]

          The margins are way too small for your idea RB.

        • Visitor [Join Now]
          firstlawofnature [visitor]

          Yeah if only redbox had the margins of the B&M stores.

          • Visitor [Join Now]
            rb [visitor]

            Okay,..so I can’t claim to be an expert, or even novice, in how businesses work within margins or profit as such. BUT, let’s suppose for every 500,000 of these promo code booklets that Redbox sells for a total of $500,000 ,$100,000 goes towards the cost of printing/distributing the booklets. That still gives Redbox a $400,000–80%– profit THAT THEY wouldn’t have made otherwise! The addition of these booklets would not increase costs of operating already present kiosks, nor would it increase costs for the Redbox kiosk service employees already doing their jobs. The thing that it would do is increase the number of dvd rentals AND Redbox customers as it would put more rentals in the hands of more people. It would introduce more people to using Redbox kiosks. Statistics show it is something like 25% of all coupons manufacturers put out are actually used/redeemed by people. Even if people/companies/schools buy these booklets and use them to give as gifts, for fundraisers, etc. it would still be ‘profitable’ for Redbox because just the ‘buying’ of the booklets by people/companies/schools, etc has increased Redbox profits. Then, even if only 25% actually redeem their promo code coupons that just becomes profit on top of profit for Redbox because it is introducing more customers to using Redbox kiosks, and thus increasing number of future dvd rentals for Redbox. Other than J.S. continual statement (solution?) that Redbox needs to raise its rental prices to $2 to become profitable (which will likely decrease number of regular customers/ rentals by 50%!), my promo code booklet idea is a solution that will likely increase customers/rentals/profits! Just like Redbox has made it easy for people to rent/become customers by making it convenient to rent with their thousands and thousands of kiosk locations, my promo code booklet solution would be one more way to put more rentals into the hands of more people/customers! It’s all about getting more renting people/customers to the kiosks, and my solution would certainly do that!

          • Visitor [Join Now]
            Firstlawofnature [visitor]

            Selling promo codes? Promo codes are supposed to be free. Keeping advertising costs to an absolute minimum is important. I say subscription plan before promo code booklet. Booklets are too old school IMO.

        • Visitor [Join Now]
          Consumer [visitor]

          RB, how would you handle people losing their books without a physical location to help? Plus once you discount a cheap product, You can’t go up
          $1 or $1.25 per day is fantastic. If it isn’t broke, don’t fix it.

          • Visitor [Join Now]
            rb [visitor]

            Dear Consumer: If you lose your $5 promo code booklet that you paid for and activated, then it was due to your irresponsibility to take care of your property. As one learns early on in life, the consequence of such irresponsibility would be “finders’ keepers, losers weepers”. The consequences would be no different than if you lost your $5 McDonald’s coupon booklet that you paid for….I don’t think you’d walk into McDonalds and tell them you lost your $5 McDonald booklet and expect them to replace it for you at no cost! The consequences will be no different with the Redbox promo code booklet. As far as “once you discount a cheap product, you can’t go up”…Don’t worry! I want Redbox to be profitable and succeed also–I don’t want these $5 Redbox code booklets to be bought out by scammers who think they’ll save their booklets for 20+ years and then think in 20 years they can use the codes (they paid $1 a code for now) to then rent Redbox dvds that in 20 years have risen to $3 a rental. The Redbox promo codes/booklet will have terms and conditions: Redbox is not responsible if you lose your booklet; booklet/codes must be activated/used one-year from purchase date and after that the codes expire. I hope I’ve clarified things for you Consumer. I’m glad you have taken my idea seriously because IT IS a well-thought out idea…And I remember a great philosopher stating something to the effect that an idea can never become ‘brilliant’ unless or until it is shared with others.. So I share my “ideas”… (And because I really do think my Redbox promo code booklet is a worthy/good idea worth sharing, I DO NOT want to see Michael use this idea on his April Fool’s Day Post!)

  4. Visitor [Join Now]
    Dee [visitor]

    I wouldn’t mind an option for paying for just unlimited online streaming, no DVDs as long as the selection continued to expand. I really wish past seasons of television shows were all online, not just certain seasons (which really is annoying).

  5. Visitor [Join Now]
    pootroot [visitor]

    Naturally John Small has to put in his two cents which isn’t worth one cent (as usual). Keep up the good work firstlawofnature!!!

  6. Member [Join Now]
    Joe LittleBear [joe-littlebear]

    When I worked with the Sheriff Dept,,,had schooling in Confidence games…and the ploys used by merchants and even drug dealers… The “intro ” was often free or at a very reduced rate…”Until they got you hooked ! ” Once their goods, merchandise, or product became a ” part of your daily life ” then the price jumped….. By then, you didn’t want to give it up….and they reeled you in….. the same way women do to men…. The secret is simply this…. (1) IF they can convince you that you can’t live without IT….then (2) IF they can convince you that THEY are the ONLY source of IT ……then they have got you where they want you… FIRST, let me say that YOU CAN LIVE WITHOUT IT…..SECOND….THERE IS MORE THAN ONE SOURCE OF IT…… I have one cardinal rule for life…..whether it is your home, your car, your favorite squeeze,,….your dog,,,whatever……That Is : Take time to calculate how much it costs you vs: how much you enjoy it…. IF IT IS COSTING YOU MORE……..THAN THE PLEASURE YOU ARE GETTING FROM IT……. then cut your losses and get rid of it… Time is on your side….there is nothing worse for a merchant that to have umpteen products that no one will buy….( some things DO spoil with age ) even a woman’s looks…

  7. Visitor [Join Now]
    MissD [visitor]

    I think both Redbox and Netflix better be careful raising prices. If they get too high a new provider could show up in the market who can price them out just like they have done BlockBuster. Hmmmm

  8. Visitor [Join Now]
    Panda [visitor]

    If either raised their prices, I would drop the services all together. I have already stopped renting from RedBox after a drastic reduction in the number of free codes they offer, stopped paying for cable and stopped going to movie theaters. It is too easy to find this content for free and technology is advancing so fast that watching streamed shows on television is becoming easier and easier.. I pay for Netflix for convenience, not need. I do agree with Dee, however, that I would gladly pay the same I pay now to NOT get one movie out at a time. Why is there no stream-only option?

    • Member [Join Now]
      Joe LittleBear [joe-littlebear]

      Let me tell you about MY experience with Netflix….I live 50 miles from a Netflix depot…..I know that a letter or small parcel takes only one day to be carried by the postal service between these two points…therefore, If I put a returning DVD in the morning mail today, it will be received at Richmond the next morning… If they, ( at the depot) receive this DVD and mail me the next one in the afternoon mail the same day…then I will receive it in the next days mail…. So, if I mail the return on Monday…the depot receives it on Tuesday morning….if they put the next one in the Tuesday afternoon mail….I will receive it in Wednesday’s mail…so this gives me about a three day turnaround…and it did work that way for a few months….then they would E-mail me that they had received my return…..on Wednesday…..E-mail me again that they were sending the next movie…..on Thursday….and maybe I would get it on Friday or Saturday…. So, I contacted Netflix and told them that I was supposed to have unlimited DVD’s BUT that the depot was deliberately limiting the number of DVD’s I could receive per month by stretching out the turnaround time so that I didn’t get more than one shipment per week…..( I should have gotten double that amount ) Also,,,,I had to buy a “Disc washer ” and whenever I got a DVD,,,I had to wash it two or three times to get the candy, jelly, peanut butter, and body fluids out of the DVD so it would play without “freezing and skipping “….. I witnessed one parent allowing their three year old to change the DVD in their machine and “proudly proclaiming ” that it was a “learning experience ” for the child… When I mentioned the problems I had had because of such practices and suggested that the child was not mature enough to know how to treat the discs properly,….all I got was a look which emulated a Bulldog….. Netflix did not treat my complaints very seriously and did little or nothing to remedy the problems…..they gave me the attitude that I should expect such things as a normal part of life and just shut up, and keep sending them money…

  9. Visitor [Join Now]
    Lisa [visitor]

    Hello to all

  10. Visitor [Join Now]
    Lisa [visitor]

    Okay now that I have your attention, my husband works for Netflix, and trust me they work their butts off. Coming in at 2am and sometimes not leaving til 4 in the afternoon. There is so much that goes into you getting your movies.. And on time and so on and so forth.
    Look at it this way you all pay $8.99 a month or more and you can keep it as long as you want to.. Remember Blockbuster or Hollywood Video charged you $3.99 to $5.99 for one movie for 1 or up to 3 days.. That is a no brainer. It is still so much cheaper.. And think if something came up that you couldn’t watch that movie and then you paid for that movie that you never got to watch.
    And the streaming they give you the disc’s to stream with your gaming systems and they DONT charge you for those.
    And you can pick your movies in the comfort of your own home and never have to drive to the location and hope that they have the one you want, and the lines and gas you have to use, or if you dont have a car then you have to take the bus.
    Netflix is the way to go.. So just think the next time you open your red envelope that my hard working husband got that movie to you to enjoy and you never had to leave home to get it..

    • Visitor [Join Now]
      Lisa [visitor]

      Oh and I forgot to say that they have to clean every movie by hand and check every disc for cracks or any other defects. They take pride in what they do, to make sure that their customer’s are happy…

      Go Netflix’s!! You Rock!!!

    • Visitor [Join Now]
      MacGregor [visitor]

      I’m with you and your husband, Lisa. I live in Chicago with a nearby Netflix station so turnaround time is as described by JoeLittleBear but it suits me just fine. Coupled with my other responsibilities in life, the streaming service and the other entertainment I enjoy (theatre, dinner out with friends, visiting museums, going on vacations, walking my dog, some amateurish painting, etc., etc.) watching movies at the pace that fits with Netflix schedule is a nice addition to my daily life. I do enjoy keeping the movies as long as I care to (yes the Blockbuster so-called three-day rental was troublesome) and the costs to use the service are fair. In all, it works well for me with my lifestyle but obviously not for everyone. By the way, all of my DVDs have been clean and ready to play; sorry if some have not for some people.
      By the way, a disc washer is an unnecessary expense since mild, dilute dishwashing detergent and a microfiber cloth (such cloth as used on your eyeglasses,computer or TV screen) will work just fine. Eyeglass cleaner is quite useful unless the DVD is encrusted with mud, hard candy and gravel (just kidding!) But be sure to use circular motions with the microfibre cloth following the “grooves” on the disc. You can get some help with cleaning by checking PCWorld, PCMagazine or MacWorld.
      Nonetheless, Lisa, tell your husband that for most of us, his work is appreciated!
      And, unless Redbox starts offering larger selections with a lot more kiosks, they are off my radar for the foreseeable future. The only one nearest me is an 8-block walk in each direction times 4 since I need to return the DVD by the next day. Unfortunately, that “close” one frequently has mechanical problems. Netflix has it made for now….but can Amazon.com be far behind? We are, after all, an entrepreneurial country!

  11. Member [Join Now]
    alans613

    Lisa, you’re right on the money here. Unfortunately you do get a defective disc every now and then. Us humans aren’t exactly perfect.
    Joe, it sounds like Netflix is “Throttling” you. It happens to me every now and then(and in fact, has happened to me this week). Remember, the more movies you rent from them, the less money they make, and the more postage they have to pay out, so to keep their losses down they “Throttle” your account. Hope this info helps!

    • Member [Join Now]
      Joe LittleBear [joe-littlebear]

      Yes alans613….that’s exactly what they were doing….but they were guilty of deceptive advertising when they stated that rentals were “unlimited “……they violated that agreement by their attempts to limit my veiwing by their manuevers to limit the number of DVDs I could receive……Just like the diner which had a sign that stated….” All you can eat for $5.95……” so Bubba orders a plate of food…eats it, and asks for a refill…..When the diner wanted more money..,,.Bubba says ” Your sign says ” All you can eat for $ 5.95 ” and I paid the $5.95 and I’m still hungry”….. It was then he was told that the plate of food he ate ” was all he could eat for $5.95 “

  12. Member [Join Now]
    comiccorey

    If Netflix had the option to get video games I would pay a little more.