Netflix, the pioneer in online streaming that for the past few years could seemingly do no wrong, made a bold step in formally separating out its DVD-by-mail and streaming offerings. In the process they raised the monthly price of its popular 1-DVD/unlimited streaming plan from $9.99 to $15.98. Here’s a nice summary of the history of Netflix pricing and how this recent 50% price increase came about.
As a company, Netflix is a great case study in how to bring a new consumer content platform to market, and the importance of creating partnerships in the retail ecosystem. I certainly see some parallels to the Powered by ClearAccess model and how we deliver new applications through our service provider channel. And for the record I think $16 is still a pretty good deal for basically all-you-can-eat access to movies and shows, but I’m more interested in the bigger picture here.
Back in January I wrote about the over-the-top video market and concluded that it’s a zero-sum game for consumers, and this recent Netflix price increase reflects this fact. Netflix locked in great content licensing deals back when streaming full-length features was something new, there was no competition, and it posed no real threat to DVD or theater revenue. Now, consumers have other options from big names like Amazon, Hulu, and Apple, and Netflix’s licensing terms are set to increase ten-fold according to one analyst I read. Furthermore, service providers are well aware that Netflix uses more bandwidth than any other application on the Internet, and the shift towards usage caps and metered broadband could pose a new kind of threat to any kind of streaming video offering.
Ironically, one key reason for “cord cutters” to drop their cable or satellite provider and go all-Internet streaming is the perceived continued rate increases for the same service bundles, and its that kind of rate increase that Netflix is catching heat for this week. But the reality is that all of the content originates from the same short list of major studios, and while the means of distribution will vary, the cost to license the content eventually evens out. It then comes down to who creates the best user experience, offers pricing flexibility, and can deliver the highest streaming quality, and in those categories right now I think it’s still anybody’s game.
Last modified on Wednesday, 25 January 2012 00:04
Published in
Market Analysis
Steve Gorretta
Director of Product Management