If you're one of the many consumers who now get their tv shows and movies through DVD home delivery rental services or digital distribution, then you have likely heard about and had to consider the new policies concerning Netflix's service.
In the middle of July Netflix announced a new pricing plan that would raise the cost for customers who wished to have both streaming and dvd rental plans. Now, instead of the $9.99 monthly fee for unlimited streaming and one DVD at a time, customers would now have to purchase two plans: the one DVD at a time plan for $7.99 and an additional $7.99 for unlimited streaming plan. According to CNN, the reaction to this decision has been swift and largely negative, with many customers taking to the company's blog announcement of the price hike to voice their discontent. A number of customers commented on their intention to move to Netflix's competitors, such as Amazon for streaming or Redbox for dvd rentals, as a result of the changes.
Wired.com reports that Netflix may have changed its plans too soon, as the company did not seem to anticipate the numbers of customers who would drop their plans altogether, rather than moving to Netflix's streaming only service, leading to a nearly 1 million drop in subscribers. As a result Netflix has had to revise their quarterly estimates. Stockholders responded with a 13% drop in Netflix's stock. According to Wired.com this may be the result of Netflix jumping the gun, before it commanded a majority of the streaming market and before DVDs have become a relic of the past.
Customers have also stated that the size of Netflix's streaming library does not warrant the increased prices. According to CNN, just prior to its new pricing announcement, Netflix lost its licensing contract with Sony, which pulled all of its films from the Netflix catalogue. While Netflix currently boasts the largest streaming catalogue, its even larger dvd rental catalogue reminds customers of what the streaming plan lacks, and with new competitors into the streaming market Netflix may need to watch its back.
Netflix's reaction to the backlash has also been heavily criticized. Recently Netflix announced that it would be splitting the company in half, keeping the Netflix moniker for its internet streaming service while its dvd service would now be called Qwikster. Criticism has been mounted that the separation of the service into two websites would further alienate customers who intended to keep both steaming and dvd rental services. Combined with some poking fun at the interesting choice of Qwikster's name, to the discovery that Qwikster's twitter handle had already been taken, things may be looking a bit bleak for Netflix.
So what does this mean for other media companies as they try to reconcile their original models with a new digital and instant gratification reality? Mathew Ingram at GigaOM offers some insight into what news publishers may learn from Netflix. Like Netflix, new publishers are also trying to manage two branches, offline distribution vs. online distribution. The rational behind Netflix's move comes from an attempt to cut costs and infrastructure by emphasizing online distribution. The way that newspapers and Netflix differ, however, is that while Netflix relies solely on subscribers for revenue, a majority of the revenue for newspapers still comes from advertisers. While there has been a steady increase in the cost of paper subscriptions, Ingram asserts that the only way papers can make the final jump to the web is if advertisers decide to start paying more for online advertising. In a follow-up article Ingram returns to the idea of advertising as a reason why newspapers have not been so quick to make the jump as Netflix has. As a result, news publishers continue to be hesitant to completely halt their print services, settling for paywalls which Ingram states, "are mostly intended to function like a line of sandbags, keeping existing print subscribers from deserting that business for the free web." He says that news publishers can either wait for print media to die a slow death or take the plunge that Netflix has and risk some customer backlash. Either way, they will eventually have to make the transition.
Netflix likely had the right idea to push the streaming option over its dvd rental service. In time streaming may very likely become dominant, rendering dvd rentals virtually nonexistent. However, it is evident that that time has not yet come and Netflix may have been a bit hasty to harold in the new era. The question now will be if this decision will hurt Netflix in the long run as its competitors continue to catch up, or if the preemptive decision will give them an edge when dvd rental finally falls to the wayside. It will certainly be interesting to watch, especially for other companies trying to create new models for online content distribution.