Stop Whining About Netflix and Redbox Price Increases

In the last few months, Netflix has lost 800,000 subscribers and Redbox is being accused of “pulling a Netflix” due to price increases. From the whining about Redbox and Netflix online, you’d think that the companies were demanding customers’ first-born children.

The reality is that both companies have been entirely reasonable about pricing. In the face of market forces out of their control, both companies have put forward reasonable price increases. The reaction online, unfortunately, has been entirely out of proportion with the reality. People need to stop whining and do a little research before they lay all the blame on Netflix and Redbox.

Editor’s note: This story is part of a series we call Redux, where we’re re-publishing some of our best posts of 2011. As we look back at the year, and ahead to what next year holds, we think these are the stories that deserve a second glance. It’s not just a best-of list, it’s also a collection of posts that examine the fundamental issues that continue to shape the Web. We hope you enjoy reading them again and we look forward to bringing you more Web products and trends analysis in 2012. Happy holidays from Team ReadWriteWeb!

In Defense of Netflix (Sort Of…)

I will grant you that Netflix totally botched its announcement about its price increases. And the Qwikster thing? That was like the New Coke of online service announcements. If you’re not old enough to remember the New Coke debacle, Wikipedia can hook you up. But what it can’t do is actually convey the taste of New Coke, which was horrible. It was sort of the haggis of soft drinks, but I digress…

But if you consider the cost increases that Netflix has been facing, there’s really only one way its prices could go, and that’s up. I actually applaud Netflix in that its reaction to being squeezed by the content providers was to raise prices rather than laying people off, which is a more typical corporate reaction. (Not that Netflix is innocent of layoffs entirely.)

Consider that when Netflix first launched its streaming service, it didn’t bump the price of subscriptions. Last year, the company introduced a modest price bump of $1 a month for plans with the same number of DVDs plus streaming. That’s $1 a month for a service that now accounts for 32.7% of Internet bandwidth. This tells me that Netflix users, at least some of them, are using the hell out of streaming.

Since then, Netflix has had to increase licensing payments to Starz, for CW content and others. Netflix is also producing original programming to feed the demand for content. In other words, the company’s costs are going up, up and up. More money for content. More money for bandwidth. More money to create new content.

Netflix isn’t doing this out of the kindness of its heart, of course. I’m not saying that its users need to be thrilled about its changes, but the numbers of users storming off in a huff and sounding off online is completely disproportionate.

The folks who are complaining about the current streaming selection with Netflix need to understand, it’s not like Netflix is just opting not to carry certain movies or TV shows. In some cases, the content providers (like HBO) won’t license to Netflix at any cost. Others have priced themselves out of reach.

Alternatives and Pricing

One thing that seems to be missing entirely is a sense of perspective. A single DVD plus streaming account with Netflix will set you back a whopping $15.98 a month. Renting a movie with Redbox now sets you back $1.20 a night, up from $1.00. I don’t know how many movies folks rent with Redbox on average, but if you rent 10 movies a month for one night your costs have “soared” by $2.00.

To put that in perspective, movie ticket prices in St. Louis (where I live) run anywhere from $5.00 for matinée showings to around $10.00 for weekend showings of 3D flicks. You have to multiply that by the number of people going to the theater, plus snacks, plus gas to and from the theater. Think of how much movie ticket prices have risen since Netflix introduced streaming, or since Redbox’s inception.

Alternately you could look at the costs of cable or satellite. I don’t think it’s possible to get a reasonable cable/satellite package with decent movie channels for less than $50 a month.

Why People Are Over-Reacting

It’s not entirely surprising that people are over-reacting to the price increases. Prices for goods and services go up all the time, but Netflix and Redbox have a few factors working against them.

First, they’re fairly new services. They established pricing in new markets, and now they’re having to readjust. The increases are taken out of proportion because there’s nothing to compare against. The price of milk goes up, no big deal. If you rent, you expect that your rent will go up every year or two. When gas prices went up, local businesses raised prices accordingly, and people (mostly) took it in stride. But for some reason, people seem to expect the costs for these new services to remain immutable, or (magically) go down.

Secondly, the press has made a big deal out of the increases. Especially Netflix. Because both are national services with standardized pricing, it’s obvious when the pricing changes. I’ve noticed the same effect with the price of stamps, despite being incredibly cheap to mail letters in the United States (compared to other countries) people get all bent out of shape over a few pennies for postage. But few people pitch a hissy fit when bread goes up by a few cents.

There’s also the fact that a lot of people are really concerned about money right now. If the price increases had come at a different time, a lot fewer people would have gotten upset about it. Timing is not on their side.

Finally, the customer loyalty that Netflix and Redbox have is predicated on the fact that people feel that they’re getting a great deal and good service. If people were less attached to the services, they’d not be as peeved now. It’s weird, but we expect to get gouged by AT&T. Netflix wants more money? It’s an outrage!

Blame Where It Belongs

If you really feel injured by the Netflix and Redbox price bumps, put the blame where it belongs. In this case, it belongs firmly at the feet of the content companies (in the case of Netflix) and the banks (in the case of Redbox).

The problem is, of course, it takes a lot more effort to actually punish the content providers or banks. So people cancel their accounts and/or stop renting from Redbox. This doesn’t really hurt the guilty parties in the slightest. A weakened Netflix is exactly what the content providers would love to see. If it goes under, it’s business as usual. Netflix stops disrupting their business models. If not, the company is in a weakened bargaining position because in the face of lost subscribers the company can ill afford to lose any more content deals.

The fees that banks see from Redbox, individually, probably wouldn’t even be a blip in the banks’ profits. They’re wringing more money out of all merchants, not just Redbox.

Do what you want with your money, of course. If the content selection doesn’t work for you, then it doesn’t work. But the virtual fist-shaking and complaints that Netflix or Redbox are “gouging” customers are way off-target. I’ve never used Redbox, but I wouldn’t stop using the service over its first price increase in eight years.

I’m keeping my Netflix subscription as-is, though. The company has, with the exception of the Qwikster debacle, earned my business. People should stop whining and reconsider whether they’re really getting the bang for their buck. What do you think?

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