Netflix Turning the Screws on Blu-ray Users

[Chris Gohlke]

<div class='os_post_top_link'><a href='http://arstechnica.com/media/news/2009/03/netflix-bumps-extra-blu-ray-charge-for-most-accounts-again.ars' target='_blank'>http://arstechnica.com/media/news/2...ounts-again.ars</a><br /><br /></div><p><em>"Less than six months after Netflix imposed a $1 surcharge for Blu-ray lovers, the company has decided to jack up its rates once again. In an e-mail sent to subscribers today, Netflix said that it would be raising its Blu-ray access charge to as much as $9 per month on top of a normal subscription rate. The changes will go into effect on customers' billing statements on or after April 27, 2009 unless they remove the option from their accounts."</em></p><p><img src="http://images.thoughtsmedia.com/resizer/thumbs/size/600/dht/auto/1238446946.usr10.jpg" style="border: 0;" /></p><p>I have not received my e-mail yet, but I'm not particularly pleased by this.&nbsp; On my plan, this amounts to a 4x increase in the Blu-ray surcharge.&nbsp; Given that less than 25% of the movies in my queue are even available on Blu-ray, I just can't justify the extra cost and will be cutting the Blu-ray option from my account.&nbsp; Regardless of whether you think the cost is justified, I think this is a marketing blunder.&nbsp; By setting the surcharge at $1 last year, they set an expectation as to what the pricing structure should be and making such a massive change so quickly is bound to peeve off some users. &nbsp;&nbsp;</p><p><em></em></p>

[Phillip Dyson]

A $9.00 surcharge?
This could due to one of two things. Either Netflix doesn't want to deal with Blue-Ray, or something in their relationship with Sony has gone wrong.

Perhaps their looking to ramp up on their streaming business. Its probably a better profit margin.

[Felix Torres]

A $9.00 surcharge?
This could due to one of two things. Either Netflix doesn't want to deal with Blue-Ray, or something in their relationship with Sony has gone wrong.

Perhaps their looking to ramp up on their streaming business. Its probably a better profit margin.

Sony is not the only source of BD movies. So bad relations with Sony don't automatically mean hostility to BD; BD is an industry standard, not just a Sony product.

Now, Netflix isn't a badly-run company so the price increase most likely is due to the usual reasons:
- increased costs - maybe the studios are increasing BD fees, maybe the disks are getting damaged more often than projected, maybe compatibility issues persist
- low/flat volume - price is a function of demand and how often they can cycle individual disks through the revenue wringer. Maybe the demand for BD is so so soft they can't cycle the discks through enough to recover the costs
- maybe somebody screwed up their spreadsheet projections and slipped a decimal point

If I had to guess, I'd say that an order of magnitude increase in the premium from $1 to $10 suggests its a combination of all three but most number two; BD demand *is* softer than projected, across the board. Players sales are soft, PS3 sales are declining year-to-year, movie sales are growing slower than expected... So it would make sense that BD rental demand isn't as high as projected; and with a lower customer base to spread the costs over, the numbers just don't add up.

A few years ago, Dell had a similar problem with Linux; not enough customers were buying linux to justify even the minimum support staff needed. So first they raised the cost of linux boxes and then they dropped it. (They returned to the linux business a couple years later when there was enough demand to justify it.)

It's pretty clear that Netflix been subsidizing BD with DVD income and decided that BD now has to stand by itself on the books. Not a good omen, though; odds are BD support may be on its way out, cause that price model is not very likely to increase BD signups.

[sundown]

They're proposing an extra $4 a month for me. I can afford the extra $4 but like Chris, I look through my queue and see about 5 Blu-ray rentals on the list of 100 movies I've added. I might see one Blu-ray movie every month or two. Why should I pay $4 a month for months when I don't rent one? Then again, with Blu-ray movies costing so dang much, I don't see myself buying any so the only chance I'll have to use that fancy new Blu-ray player I have is if I rent from Netflix.

Stupid Sony and their proprietary high quality/high price business model.

[Macguy59]

My fee is doubling from $1 to $2. I'll absorb this increase but another increase a year from now (or sooner ) will result in a lost customer.

[Tony Rylow]

I've been meaning to drop my plan down to 2 movies at a time anyway, I find that I don't watch quite as many movies as I used to. They end up sitting on the coffee table for 2 weeks before I watch them and I always forget to send them back individually after I've watched them. I dropped my plan down just now, but I may still go down to 1 disc at a time.

[Jason Dunn]

On my plan, this amounts to a 4x increase in the Blu-ray surcharge. Given that less than 25% of the movies in my queue are even available on Blu-ray, I just can't justify the extra cost and will be cutting the Blu-ray option from my account.

It seems kind of crazy, doesn't it, that you're having to pay a fee in months where you don't even GET a Blu-ray disc? Thankfully, Zip.ca (http://www.zip.ca) (the biggest Netflix-like company in Canada) doesn't have a Blu-ray surcharge yet. I so rarely even GET Blu-ray discs from them, that might be the reason...hell, I so rarely get my top 10 movies! I tend to not select Blu-ray, even though I want it, because I want the movie and if I select Blu-ray I'm guessing that it will reduce my chances of getting the movie at all. :mad:

[whydidnt]

I wonder if this is just a subtle way for Netflix to negotiate with studios. There have been recent rumblings that the studios want to change the prices they charge Netflix. Perhaps Netflix is hoping many will opt-out of the new model so they can show the studios their isnt enough demand for Blu-Ray to justify the studios inflated prices.

The studios have been hoping for Blu-Ray to catch on the way DVDs did, with the hope many will buy/rent previously viewed DVDs but it hasn't happened, and it won't happen if outfits such as Netflix make the price point too high.

If Netflix just wanted to recoup extra costs associated with distributing Blu-Ray when available, they could simply charge a $1.00/movie premium with a monthly cap equal to the new charges, that way those that don't get many of their movies in Blu-Ray wouldn't be paying for product they don't use.

Of course if the new pricing model is indeed too high, and enough people are unhappy, that just opens things for the competition--Any chance we'll start seeing Blu-Ray disks in those RedBox kiosks anytime soon?

[Felix Torres]

Any chance we'll start seeing Blu-Ray disks in those RedBox kiosks anytime soon?
http://www.redbox.com/ads/bluray.aspx

They've been doing it at "select" locations since last fall.

[Chris Gohlke]

I'd go for a plan similar to what whydidnt proposed.

A small surcharge for each movie you want upgraded to Bluray. I'd pay that for the movies I want via Bluray. Given a bunch of the items in my queue are not bluray, I should not be stuck with an all or nothing decision when paying for them.

[doogald]

My guess is that there are not a lot of Blu-Ray customers and Netflix is just trying to recover some of the costs associated with its support (buying extra copies that are sent only to some customers, warehousing, extra QC checking when items are sent, etc.) If there were more Blu-Ray customers, those extra costs would be spread over more people. Let's guess that they anticipated more people to chose Blu-Ray than have chosen it.

[Chris Gohlke]

But there costs should not be any more than for any other title, other than the acquisition cost. Once in the system, a disk is a disk is a disk. There is large variability in the cost of DVD's too, I don't see them adjusting their pricing based on the costs of the DVD type you rent. Someone who rents only new releases are probably more costly than someone who rents more back catalog (cheaper items).

[whydidnt]

But there costs should not be any more than for any other title, other than the acquisition cost. Once in the system, a disk is a disk is a disk. There is large variability in the cost of DVD's too, I don't see them adjusting their pricing based on the costs of the DVD type you rent. Someone who rents only new releases are probably more costly than someone who rents more back catalog (cheaper items).

But the cost of BluRay disks is still 2x3 times as much as a comparable DVD, particularly on catalog (non new release) disks. They need and have the right to recover that additional cost + a reasonable profit. In this case, as usual the early adopter ends up paying the price. The good news is that if they charge more than the value provided you can elsewhere - RedBox for example, for newer releases anyway.