Netflix Higher Prices

Netflix, recently announced they were going to increase prices for their service. People under the new plan will have to pay $7.99 per month to just stream (or watch movies online). The cost of renting movies is an additional $7.99 per month. Usually companies over time lower their prices if they know what they are doing. Somehow I get the feeling that some people in the finance department are just now realizing they can charge more money and they believe customers will stay or they are losing money with the postage they have to pay for on mailing DVD’s and need to recoup their costs. The question however is will Netflix get more for their dollar with the price hike?

For me personally I think Netflix a wide variety of DVDs that you can choose from to be mailed to you. However, the streaming service is somewhat lacking. The first time I was able to use streaming on Netflix I was amazed about how many movies were available. After about a year or so the novelty wore off. One of the problems is that the cost to bring content to customers is pretty high. The idea is to have great content to attract customers and use that money to attract more customers. Last year, Netflix signed a deal where Netflix would pay $200 million per year to stream movies from Paramount, Lionsgate and MGM. This year Netflix signed a deal with CBS for an undisclosed amount to stream. The trend has been for Netflix to spend a lot of money on streaming. In the first six months of 2010 Netflix spent $117 million for content. Netflix supposedly has a library to around 20,000 as of last year from streaming. However only around less than 9% of popular movies can be accessed through streaming. The question however is will Netflix still have customers after they increase prices. Demand curves do slope downward. After Netflix announced they were increasing prices there were 80,000 negative comments on their Facebook page.

At the end of the day Netflix has to please consumers. Streaming movies should be cheaper than sending movies through the mail because of postage. Hopefully, Netflix will figure out what movies people want and deliver.

Netflix, recently announced they were going to increase prices for their service. People under the new plan will have to pay $7.99 per month to just stream (or watch movies online). The cost of renting movies is an additional $7.99 per month. Usually companies over time lower their prices if they know what they are doing. Somehow I get the feeling that some people in the finance department are just now realizing they can charge more money and they believe customers will stay or they are losing money with the postage they have to pay for on mailing DVD’s and need to recoup their costs. The question however is will Netflix get more for their dollar with the price hike?

For me personally I think Netflix a wide variety of DVDs that you can choose from to be mailed to you. However, the streaming service is somewhat lacking. The first time I was able to use streaming on Netflix I was amazed about how many movies were available. After about a year or so the novelty wore off. One of the problems is that the cost to bring content to customers is pretty high. The idea is to have great content to attract customers and use that money to attract more customers. Last year, Netflix signed a deal where Netflix would pay $200 million per year to stream movies from Paramount, Lionsgate and MGM. This year Netflix signed a deal with CBS for an undisclosed amount to stream. The trend has been for Netflix to spend a lot of money on streaming. In the first six months of 2010 Netflix spent $117 million for content. Netflix supposedly has a library to around 20,000 as of last year from streaming. However only around less than 9% of popular movies can be accessed through streaming. The question however is will Netflix still have customers after they increase prices. Demand curves do slope downward. After Netflix announced they were increasing prices there were 80,000 negative comments on their Facebook page.
At the end of the day Netflix has to please consumers. Streaming movies should be cheaper than sending movies through the mail because of postage. Hopefully, Netflix will figure out what movies people want and deliver.