July 13, 2011
Netflix Raising Prices
In an announcement that angered a great number of people, Netflix has announced that they will be redoing their pricing plans. Currently users are able for $9.99 to get 1 DVD and unlimited streaming. Netflix, starting in September, will be separating the two services. The new pricing scheme is such 1 DVD out for $7.99 or unlimited streaming for $7.99 or both for $15.98. This statement led to outrage because users were furious with the fact that they had to pay more money. Netflix is also in the process of renegotiating their streaming contracts and as such several studios have pulled their movies from Netflix instant streaming.
While I don’t like the price change I think people need to look a little deeper into the price increase. Most people think “I’m just steaming a moving how much can it really cost” and the answer is… alot. First there is the bandwidth required to deliver streaming services to everyone who wants to watch it and sometimes on multiple devices. Bandwidth isn’t cheap in mass quantities that would be required to serve users across the world. Currently Netflix uses level 3 communications for all of their bandwidth needs and they probably use a good portion of that companies bandwidth. The bandwidth alone probably costs the company over a million dollars a month just to keep data flowing to consumers. That’s $12 million dollars a year. That’s not chump change by any measure. Then in addition to this they have to pay licensing fees to movie studios to have the right to show their movies online. When Netflix first started offering this service they got a steal on licensing because no one really watched movies online. Now, however, there are millions of people who are using the internet to watch their movies and movie studios know that they can make a killing and as such they are going to raise those costs. Lets take the average TV show for example, it costs netflix around $100,000 to $1,000,000 per episode to have the rights to stream any given season. Lets take Star Trek: Voyager, it has 100 episodes, that’s $10,000,000 just to have the rights to stream that to consumers and thats only one show. Multiply that by the hundreds of TV episodes they have available and you get an idea of the immense cost of operating that kind of business. Those costs have to be paid for somehow and if movie studios and bandwidth provides raise their costs so does Netflix, it’s just simple business.
What do you guys think?