The Netflix Price Increase of 2011

October 10, 2011  |  business, movies etc.

netflix_logo2Netflix has been on a bit of roller coaster ride as a company, as most people who subscribe to the service or love movies and follows such things already know.  The story is not unlike a bad M. Night Shyamalan movie; it’s got twists, turns, and is often based on such lame and asinine premises that one just has to laugh at the crazy plot points.

But rather than chronicle all the wrong moves Netflix has been making as of late, such as separating their streaming and DVD rental business into two Web sites and now backtracking on that decision (interestingly, in a letter not from CEO Reed Hastings as the other infamous letters were, but just from “Netflix”), let me offer the letter I think Netflix should have written to their customers in light of their recent price hikes.

One could argue the price increases were the wrong decision as well, but I’m not convinced of that.  In fact, I think there’s an argument to be made that Netflix did NOT, in fact, raise their prices.  This point will soon become clear.  Here is the letter:

Dear Netflix Customer,

As you know, Netflix’s streaming service has grown by leaps and bounds over the past two years, and we now currently offer thousands of movies and TV shows that you can stream instantly to almost every device in your household.  From the iPhone to the big screen TV, Netflix built in to hundreds of devices that make using our streaming service so convenient.

As a company we continue to invest in our streaming service, and we strongly believe streaming is the way most customers prefer to consume their entertainment.  However, in order to continue to invest in expanding the number of titles and overall quality of our streaming services, we have decided to adjust our pricing model.  In most cases, the new prices will not change how much you pay on a monthly basis for Netflix.

You may have noticed that our streaming service has grown tremendously in the past few years.  In fact, on a plan-by-plan basis, the average customer now consumes [INSERT % HERE] more total titles today than three years ago.  The number of titles available, the convenience and the high quality our streaming offers are a testament to that.  As you can imagine, while the number of customers streaming content has grown considerably, those who receive DVDs by mail are holding on to them longer.  Given the choice, our customers have demonstrated to us that they prefer to stream rather than wait for a DVD.

So, in order to continue to invest in and expand on our streaming services, we are going to adjust our pricing model.  In essence, we are leaving our prices the same, but reducing the number of DVDs out at a time on your account by one.  In other words, if you had a streaming plus 3 DVDs out at a time subscription, you will be switched to a streaming plus 2 DVDs out at a time.  Your monthly rate will not change.

Of course, if you prefer to only receive DVDs by mail and not stream any content, there will be no changes to your account and you will continue to pay the same rate.  We also have streaming-only options for those who prefer that option as well.

We believe these changes reflect the value we’ve added to the Netflix streaming service over the past few years, and will allow us to continue to invest in and add further value.

We sincerely appreciate your business and I invite you to write back with any comments, feedback or questions you might have about these changes.  I look forward to hearing from you.

Sincerely,

Reed Hastings
CEO and co-founder, Netflix

* Note: The pricing changes suggested in this letter reflect the pricing changes Netflix actually made; they’re simply presented in a different light.

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