July 19, 2011

∴ Netflix, and Its Value To Their Customers

Netflix notified their customer base of an impending price change (NYT) a week or so ago. Most saw the move as nothing more than a 60% price hike, which lead to noisy dissatisfaction. What used to cost customers $10 (unlimited streaming, unlimited DVDs one at a time) will now cost $16 (unlimited for both). Trouble is, the pricing does not match the value to Netflix customers.

I got to thinking about what the price change says about Netflix's attitude toward their products, and how that differs from customer perceptions, when looking for a movie last week. Netflix, I guess, would argue that they've set the pricing equal for streaming and DVD rental because each bears its own unique costs. Warehousing, picking, packing and postage for DVDs is expensive, and distributed streaming servers and high-bandwidth connectivity is, too. Netflix is putting the two services on an equal price footing because they see the services as essentially equal, they see customers continue to use DVD rental alongside the streaming option, and they want to migrate those users to full-time streaming. They're betting those people will ditch altogether a more expensive DVD option. What does the customer see on the other side of the transaction?

I tried searching the Netflix library with their iPhone app, looking for The Matrix trilogy, Men In Black and Men In Black II. "Not available" was the result each time. They're all available on DVD, obviously, The Netflix streaming library is significantly smaller and therefore worth less to the customer. This fact will change as more content is licensed by the studios for streaming, but today it remains that Netflix customers are being asked to pay the same price for unequal benefit. That's the point worth complaining about.

Netflix should be pushing the studios for greater streaming licensing. Until they achieve something like content parity, Netflix should charge more for DVDs than streaming, and no more than $10 - $12 for both.