A Major Move from Netflix – and My Personal Response

Last week Netflix continued its push toward streaming video with a major move. Effective the first of September, there will now be a separate charge for streaming in addition to the charge for DVDs in the mail. A customer can elect to get movies by mail, by stream or both. The change was announced by a bare bones e-mail to customers, many of whom took to the Internet to express immediate outrage and threats to cancel.

Netflix is a smart company.  Streaming video has been the obvious future for some time and Netflix got the jump on everyone else by giving it away for free to its mail customers, even those who subscribe at the one DVD at a time level. That extremely good deal is now going to go up 60%, while those who get more than one at a time will see lesser increases. 

Bifurcating streaming subscriptions from mail ones will enable Netflix to drive a harder bargain in negotiating payment for streaming rights, because Netflix will be able to show that not all its members will be streaming movies, and Netflix should only have to pay for the ones who have paid Netflix for streaming rights. The movie by mail business has very high overhead compared to the steaming business, so Netflix is probably not that concerned about mail customers cancelling. It is highly unlikely a customer who has been accessing the Netflix extensive collection by mail will be switching to a Redbox kiosk instead. Some may cut back on the number of mail DVDs and plan to stream more to compensate. The streaming collection should grow as more Netflix resources are freed up from the mail business and applied to the steam side. If fewer people sign on for streaming, then Netflix should be able to buy content cheaper, and if more people sign on, then Netflix will have more revenue for purchasing.  

Here is how this has played out for me. I found streaming on my computer to be unsatisfactory. But as I saw the streaming collection grow, I got more interested and eventually invested in the equipment to stream to my home theater in the living room. After all, I was getting the streaming for free, so why not spend for the equipment. That is how smart Netflix was, because they knew people like me would not both pay for the streaming and buy the equipment. But now that I have the set up, I am likely to pay for the stream to use it, which is what I have decided to do.

I have been complaining for some time that my Netflix mail queue was not very exciting. Other than fairly new movies, most of what is in my mail queue I can also get from my public library, like I used to do up until a year or so ago. I have a much larger streaming queue, because that collection includes lots of documentaries and foreign films that appeal to me. I was streaming more and still getting my three DVD mail quota, but when I couldn’t get The Wire Season Two from Netflix, I got it from the library along with the final three seasons. I had been thinking of cutting back to two in the mail, but now I have decided to go back to just one at a time by mail, stream lots more and get some from the library again.

Bottom line is a win for both Netflix and me. They save on the overhead of mailing to me and I save on my overall payment to Netflix. I will be paying less than I was and watching as many or more movies. The one I get by mail will probably be a newer movie which I will watch and return quickly so I can try to get six or eight a month. I won’t have three mailed DVDs sitting around nagging me to watch. I’ll try to stream more than I was and use the library more for DVD sets, like a season of a TV series.