Netflix Raises Rates Again: Business Model Has Serious Challenges Ahead
Today, Netflix announced that they are raising rates on monthly plans that allow customers to get unlimited streaming and one DVD out at a time. The plan which originally cost $9.99 a month will now cost $15.98 a month. In addition, the company is now splitting out streaming only plans from DVD plans and consumers can get an unlimited streaming plan for $7.99 a month, or one DVD out at a time for $7.99 a month. Essentially, Netflix is making people decide if they really want DVDs as part of their streaming subscription and if they do, requiring them to pay nearly $6 more for it per moth.
In November of last year, Netflix raised DVD plans between $1-$3 per month, depending on the plan you were in and now, only eight months later, they are raising rates again. This is a bad move on Netflix's part, but one that's not surprising as they look for ways to generate more revenue. With their licensing costs skyrocketing and the company aggressively pursuing more content deals for their expansion into Latin America, Netflix is feeling the pressure.
Now, they are forcing people like me who were paying $9.99 a month, to drop to a streaming only plan at $7.99 a month. That's $24 in revenue they are missing out from one customer, per year, and they are going to be millions like me who make that decision. Typically, I only got one or two DVDs a month, so Netflix wasn't losing money on me with the inclusion of DVDs in my plan. Now, when I want a DVD, I'll simply go to Redbox and get it for $1 a night. Forcing customers to go somewhere else for DVD rentals, when even Netflix admits there is still a demand for then, really isn't a smart move.
It was bad enough that Netflix gave in to the studios and agreed not to rent any new DVDs by mail for 28 days, just so the studios could force consumers to have to buy the DVDs instead. Now they are raising prices on DVD plans for the second time in 8 months and not increasing the selection and inventory of streaming only content fast enough or with content that's a lot newer.
In January of 2008, Netflix confirmed it had about 12,000 titles available for streaming. In September of 2009, ads on their website put that number at 17,000. Today, it appears that Netflix has about 20,000 titles for streaming, although Netflix won't confirm that number. If that number is accurate, it means that at any given time, Netflix has only added about 4,000 pieces of content a year for the past two years. That's not a lot of content.
Netflix is going to have a real challenge continuing to grow their subscriber numbers each quarter when they continue to give customers less for their money each month and make their plans less valuable.
Added: When logging into my Netflix account, unless I click on "your account" and then select "change plan", there is no notice that Netflix is going to raise my rate to $15.98 a month come September 1st. So unless you have heard of the news, imagine how many people are going to be surprised when they see their monthly fee change. Netflix should be highlighting this change to you immediately upon logging into their website.