Wednesday, July 13, 2011

Netflix Price Hike and Why I'm Totally Okay With It

I saw the internet somewhat explode when NetFlix announced a serious price hike.  I actually received my email today, and it was about $2 more per month than I expected, but... 

In this age of modern technological miracles mostly aimed at instant gratification and self-satisfaction, there's pretty much nothing it seems we can't find to grouse about. Louis CK has a bit on how the world is now an absolutely amazing place, and nobody's happy.

I just want to point out: Netflix is a service that provides an enormous portion of American and International Cinema to either your mailbox or to your laptop for about the cost of two movie tickets per month. The sheer volume of choice and opportunity is... astounding. Its the library of Alexandria for movies. And, its been a semi-experimental operation, breaking old distribution models and assumptions left and right since its inception.

I did something prior to writing this post that I never do:  I unscientifically and casually asked people on Facebook and Twitter about how they felt about the price hike and got a variety of responses.  Most folks seemed at peace with the change and suspected the mechanics of it figured something along the lines of passing the cost to the consumer.  I tend to agree with those people.  Others were a bit more outraged at the percentage of the hike, and I kind of get that.  It IS a big hike, but I'm still so tilted by what I saw as an unsustainable business model by Netflix and the studios that I'm glad that was as far as it went.

I'm not sure when I signed up for Netflix, but it was a long time ago now. I was disenchanted with Blockbuster's policies such as getting rid of anything in store that didn't rent during x-number of weeks (which is how they have 40 copies of The Krumps and no copies of, oh, Breakfast at Tiffany's), the fact that Blockbuster's nigh-monopoly of the 90's meant that they edited movies to satisfy certain markets. Not to mention that I never figured out how to not pay overdue charges at Blockbuster without returning the tape the same day I'd rented it.

In college I lived near I Luv Video, which helped a lot (Austinites will nod knowingly at the selection they could brag on back in the day). And for a big chain, I think Hollywood Video gave it a pretty good run and seemed to have more options. But in Arizona (02-06), we had only Blockbuster and one of those places that cuts all the nudies and swears out of movies.*

So, I recall looking at the selection on Netflix at the time and thinking "well, gee, this is way the @#$% better than Blockbuster or Hollywood Video when it comes to selection. You've got this queue so you can get whatever comes up next if you can't get the one that's up first. And no overdue fee? Just me and my lazy ass returning the movie for a flat rate? NEAT."

My rental costs were running around $7 a week, so figure about $30 a month, pre-late fee. So had I ever taken full advantage of NetFlix and watched movies every 5 days or so, I would have been saving a ton of money.

A couple years back now, I bought an HD Roku and that's how I enjoy the miracle of streaming, on-demand movies.  Sure, the selection wasn't great at first, but since its inception, Netflix has added more and more streaming movies, including some less-popular stuff that the studio let them have that I would guess was never going to be popular enough that the studio was actually going to publish a physical copy of the movie. And they add tons of backcatalog stuff each month.

Basically, unlike the physical store or how my local cable provider has dealt with "on demand"**, Netflix has always had the widest selection of entertainment and movies available.

The studios have let Netflix run a bit roughshod, and I have to give them a bit of credit here. It seems that they've created a scenario in which they let Netflix work out the kinks without making too much noise about the money they must have seen disappearing.  Had the studios followed their usual plans of vertical integration and opened their own streaming services, no doubt the cost would have been prohibitive, and the whole concept of a single "marketplace" to look for movies (and a highly usable search tool) would be...  kind of useless.  You'd have been managing a half-dozen accounts and wondering why something like Netflix didn't exist (and I still don't "rent" movies from Amazon, because I get annoyed at paying $2 to watch a single movie in my own home when I've got this service like Netflix that I think they should be partnering with).

And its gotten us to be legal consumers.  There's no question people I know who wouldn't steal so much as a piece of gum from Wal-Mart have no problem downloading Harry Potter movies from servers in India.  And I'm glad about that.  You may not know this, but it costs a lot of money to make even a supposedly cheap independent film.  More than you're going to see this year (obviously not you, Rich Uncle Pennybags.  I know you own those hotels!  Quit rubbing it in my face.).And this means we've delayed the collapse of the entertainment industry for a bit.

Hollywood is not a factory of dreams and rainbow fairies making movies so that you can feel a moment of joy at the end of a hard day's labors.  They're there to make money by selling you fart jokes or heroes punching bad people.***   I don't think its necessary to get into the business-thinking or business of movies, but suffice it to say:  its all about making as much money off your intellectual property as possible, and that has increasingly come to include home viewing.

And, no, they might not be losing money by letting Netflix stream you a copy of Caligula, they likely aren't seeing any profits on it either.  And they're going to want a nickel for every time you watch that movie.  At some point, the studios weren't going to let Netflix treat the streaming services (or even the high rotation of physical disks) like it wasn't losing them some money.  They were going to raise fees, and Netflix would need to figure out how to deal with that.

But Netflix's business model is mired in that flat fee, and to charge per-view is surely going to screw that up.  In some ways, its protecting their heavier users from paying much, much steeper charges by spreading the cost of service around a bit more.  And, I have to say, I'm fine with that.  I'm still gobsmacked at the ever-growing selection and the promise of a company that will soon be able to stream every damn movie ever made right to my TV. 

If you don't like your streaming capability, by the way, its likely not Netflix.  Its more likely your network.  Don't get mad at them, get mad at your ISP.  If you don't like their streaming selection:  wait.  Every month, that service gets better.

Ten years ago, I used to have to buy movies because I knew that no video rental place near me would carry a copy, and we're talking fairly mainstream movies but movies that didn't turn over often enough to justify the shelf space at your local video shop.  I'd also like to add: Jamie is doing an inventory right now, but I think we own around 500 movies, seasons of TV shows, etc.. on home video on DVD and Blu-Ray. Each of those cost something, and it ain't been cheap. But as I said above, that was more or less the option if you wanted to see a movie. Netflix has changed all that.

Everything is amazing, and nobody is happy.

*I am not kidding. I assumed their cut of Goodfellas ran about eight minutes.
***or both


Anonymous said...

Many people complain that the streaming catalog is still not that good. Sure, you have a lot of older movies, but what if you just want to watch newer movies? They don't generally have those (especially the really big hits). So, then you're stuck and have to pay more. So, it's OK to raise the prices, but there better be some improvement in the streaming catalog. Not everyone just enjoys watching noir and old westerns.

For example, Netflix just struck a new deal with NBC, which is great, but netflix will no longer stream SNL episodes the day-of its airing. You have to wait *until the season is over* to watch any episodes. That kind of blows if you're a big SNL fan and have decided to not pay for cable.

Honestly, I'm not sure how Netflix is going to survive in the very long term when the movie studios are just going to bleed them dry with licensing fees. Those studios have no incentive to license the stuff to Netflix, not when Hulu, Apple, and Amazon are around and not trying to destroy their business model.

Also, this:

The League said...

You know, SNL broadcasts totally free to you on Saturday nights on network TV, which you can get by adding a coathanger to the back of your TV. Just sayin'.

Not getting one (live) show exactly when its airing is not going to exactly ruin the business model and technological leap Netflix put in place that changed everything for everyone forever. Nor is it going to make me do much more than make you think you missed the point of the post (this technology is a world changer, and its cheaper than a week's worth of bottled water).

Here's the thing: you don't have to pay for streaming at all. You can rely on their disc selection and save money. Or just pay for streaming and save money (but have shoddier selection). You may not like noir or westerns, but it has created a highly valuable distribution system for older movies (not just those genres) to show somewhere other than TCM, making those available to anyone, anywhere in the world. And that is amazing.

Netflix's model will change, certainly. Its changed already a few times.

This is the era of $14 tickets for a single screening of an IMAX movie and $20 for popcorn and sodas. If Gizmodo wants to make $16 for unlimited access to content sound pricey, they need to put the same pressure on Apple to lower the prices on their phones and wireless companies on their service, which far exceeds that of Netflix.

Its definitely up to Netflix to not sit on their laurels and compete, but most of what you're grousing about is coming from the studio side, not Netflix. They're the delivery mechanism, not the content or IP owner. Its like getting mad at your television because your team isn't playing well.

Again, everything is amazing and nobody is happy.

Jake Shore said...

Great post. And thanks for the perspective. I love Netflix and I've saved a ton of money from late fees since I've joined. Great video by the way; I'm totally re-posting that on FB.

The League said...

The Louis CK clip is always what pops into my head when folks are describing what the internet calls "first world problems". And $17.99 for access to all movies fits pretty neatly into that category for me.

Anonymous said...

I don't mind the price hike, but if you're going to charge me more, then I better get something in return. The SNL example was to show that instead of adding stuff, they're removing stuff (or adding delays instead of removing delays).

Yes, everything is amazing, but I should get something in return for my extra $$ that Netflix is taking from me. Even if it's still cheaper than . In fact, Netflix don't even really justify the price increase. They could've said "look, movie studios are charging us more, so we're going to have to charge more. sorry. Plus, all the hardware we're having to add to stream these movies are expensive." I mean, that would've been better than what they said.

Paul Toohey said...

I think a big part of the problem is that not enough of the casual users of Netflix are really understanding how much content they are constantly adding (especially to the streaming). They need to do something, and probably something more intrusive like an email) to let you know. Hey we've added X (Star Trek TV is a big one recently) to streaming this June, you still pay the same amount. Basically keep putting in peoples minds what they are adding as they are adding it. That way when it gets to a point where they have to hike prices, people will go "oh, it's because of all that new stuff they've added over X amount of time".

I also have a feeling they did a bigger increase this time, to keep from having to do one for awhile. They also probably factored in the loss of people unhappy with the increase into that. They'll hike it a bunch now, and then recover and grow.

As far as SNL goes, it makes more money for NBC to throw it on Hulu (which they own a portion of) to get ad revenue. Then they can archive it to Netflix after the season ends. Who really watches SNL anymore anyways?

As I commented to @Melbotis before, my DVD collection (when I was still buying) was costing me quite a bit of money. I'd estimate I'd have spent somewhere in the 15-20k range on what I have. Now for less then what one new DVD cost, I can get access to a TON of content...I'm content with that.

J.S. said...

I still think the streaming content pretty much blows, especially in comparison witht he DVD content. Whenever I watch something that's streaming, it never ends up being something that I actually want to see, but something that I'll just settle for because it's streaming. The licensing fees, incidentally, are apparently only accounting for only a small percentage of the proce increase. I think this was less about covering their costs and a whole lot more about the cutthroat tactics involved with driving most of their competitors out of business and then taking advantage of the fact that they're one of the only games left in town. Everybody jumped on the Netflix bandwagon so much that all of their competitors pretty much withered and died, and now Netflix is using that fact to stick it to us. At the moment, I'm really missing the Blockbuster and Hollywood Video stores around the corner from my house. I didn't have to wait days for my movies to show up, and I actually had a much better chance of finding something that I actually wanted to see.

J.S. said...

Annnd... mobile phone signals don't really travel into space.

The League said...

We're reading very different sources as the licensing thing is the constant in every article I've read on this topic. And, you understand you're getting the streaming content basically for free right now (note the minor hop in price and $7.99 DVD only option offered), so something happened in the equation that changed everything. If the content isn't up to snuff via streaming... there's a reason.

I won't be at all surprised to see more selection of higher profile movies. And if you really miss the Blockbuster experience, try Googling RedBox and then add your zipcode. Nobody is judging.

There has always been a weird inverse relationship to less popular content. Basically, the studios had traditionally passed the cost of small batch home video production onto the consumer. Yeah, you could get Titanic for cheap, but if you wanted "The Live By Night", the numbers were so bad, the studio basically wasn't going to bother to spend the in-house cost to print the thing. Now, they just throw it on the server and grab their nickel-per-viewing.

Its opened a whole new set of opportunity for forgotten or little published film.

As a final note: Netflix didn't put Blockbuster out of business. Blockbuster put neighborhood stores out of business and then forgot how to not act like a crazed monopoly. Blockbuster put Blockbuster out of business. And when Netflix starts acting just as crazy, I'll move on, too. But right now paying $2 per movie on Amazon or Apple isn't attractive, especially when I feel free to not finish movies I've started that I thought I'd just try out via Netflix streaming.

And I think if you're hung up on Louis CK saying cell phones go to space...

Anonymous said...

I'll happily pay whatever Netflix charges for streaming the day I can stream The Dark Knight Rises the same time day comes out on DVD.

The League said...

That day may be coming. Its not been Netflix that has been holding that up. Studios want to believe that holding back the streaming release date boosts DVD sales (and it probably does).

Anonymous said...

Really, the biggest complaint is that the raised prices adds no value. What Paul said may be true (about Netflix adding content all the time), but we still don't get the "hits" which is what most people want, DVD or streaming.

Also, this:

The League said...

I don't know about "no value". Again, you can do just disks for cheaper than ever and have that selection. Paying for both means your streaming selection will grow and improve.

I think you have to think of it like other recent financial issues. We've been getting by on Netflix and the studio's bad math. They've had a couple of years to look at the numbers, and this is the cost of delivery.

The value will come.

I may also think of these things differently. I bought a Roku not because of what it did when I bought it but because of what I knew this sort of thing meant for on-demand content. The same was true when I bought my DVD player when I was the second person I knew to own one.

Anonymous said...

People have absolutely no idea how the movie rental/movie distribution works. A HUGE factor in Netflix's increase is to cover licensing fees, volume discounts and buybacks. The business works in simplistic terms is that Blockbuster/Netflix negotiates a "lease" of percentage million of DVDs and then the number they actually keep. These costs get amortized until they realize their costs. With each different smart device or streaming device, that is another licensing fee. DVDs and streaming are two separate costs charged by the studios. People are absolutely ignorant of how pricing works. IN ADDITION, these volume agreements get renegotiated almost every 3 quarters. These are not multi-year agreements. Disney is notorious for having short volume agreements. When I worked in-house for Blockbuster we dealt with issues related to volume agreements and licensing streams ALL the time because the studios were pains in the butt.

AND, people think it's so f'ing easy to just license that movie and stream it! They have no idea all the work that goes into securing the rights for electronic streaming, the DVD rights, the music rights, the distribution rights. WE complain about the low or slow selection but then we bitch about artists not getting their fair share. Well, this is how it works. It's a long slow process to secure all rights to a particular work of so many creative elements and then secure the right to distribute in a new format while also making sure the right authors get paid. Many talent agreements never envisioned the digital technology revolution and did not accomodate contractually for those rights.

Do you really think that the piddly price we used to pay for Netflix subscriptions will even cover the costs of talent production now that everyone realizes the enormous potential of digital content? If you think Netflix and streaming video is expensive now, wait 10 years from now as digital access providers and content creators are all under one huge conglomerate umbrella like Time Warner and Comcast. When you control the pipes and spice, then as so succintly noted in Dune, you control the universe. You better be prepared to be supporting Netflix but Netflix, Amazon and Google are the companies that will have the muscle to keep the Disneys, Time Warners and Comcasts at bay.


The League said...

Yup. Four years of film school and 20 years of industry watching have me pretty well schooled in what the home video licensing gig is like. We were talking about all this stuff in theory back in the day, and it wasn't too hard to see the issue VHS caused for old movies becoming WAY worse for streaming. All these companies have is their IP, and they aren't shy about muscling it.

I really don't think most folks do the math when they consider what this could be costing (which is why I've been in awe at the Netflix cost til now, and am in now way surprised or offended by the price increase). The best thing about Netflix is that it IS big enough now that they CAN handle the expensive licenses if they spread the damage across a few million subscriptions. Its a balancing act, because if the studios don't find an agreeable cost and Netflix doesn't offer it, they've just increased the likelihood for piracy and that nobody will be paying them to watch their movie.

J.S. said...

Annnd... Louis CK is an anachronistic Luddite who's upset that we don't all think that technology is magic the same way that he does.

Paul Toohey said...

The League is wrong, if you use Redbox, I will judge you.

J.S. said...

The sad thing is that I would totally use Redbox and have absolutely no problem with it, but there's not one by my house.

Anonymous said...

If you're complaining about selection in Netflix you will go bonkers with the selection offered by Redbox. They keep prices cheap by ONLY offering middle-class bestsellers, romantic comedies and action flicks that are successful movies. There will be no documentaries, foreign flicks, etc. At least at the Redboxes near me. Also, Redbox is transitioning to Blueray so there will be some movies only offered in Blueray and not DVD in their selection.


The League said...

RedBox is at the 7-11 halfway between our houses. I have seen it when I ran in for coffee (yes, I will drink 7-11 coffee. Stop judging.).