Netflix Price Hike Tied to Unexpected Demand for Those Little Red Envelopes

Illustration for article titled Netflix Price Hike Tied to Unexpected Demand for Those Little Red Envelopes

Contrary to popular belief, the humble DVD is not dead! Streaming, while popular, simply cannot wrest away the public eye from those silly plastic discs and onto the cloud where it belongs. Ergo, Netflix raised its prices.


That's right! While many have maligned the DVD delivery service as a big bad meanie this week in response to the massive price hike it dropped on subscribers heads, it's actually the customer's own habits that are to blame. Well, that and a massive miscalculation on Netflix's part. Mostly that.

You see, a while ago Netflix kind of went all in on the whole streaming thing—special streaming-only subscription plan, etc—and bet that a physical media-free future was right around the corner. That may be the case, eventually, but it hasn't happened quite as quickly as Netflix needed for streaming to have really paid off. Keyword paid, because a USA Today article today is theorizing a big part of the price hike can be attributed to Netflix underestimating how much its subscribers love their DVDs:

The price hike serves multiple purposes, analysts say. It will likely push more people into the streaming service, which will help Netflix to lower its postal expenses. The cost of shipping a DVD can be as much as 75 cents per disc, while analyst Mike Olson of Piper Jaffrey estimates that it costs just 5 cents to 10 cents to deliver a movie over the Internet.

At the same time, Netflix needs additional revenue to build up its streaming service. In the first three months of this year, Netflix spent $192 million on streaming rights after putting $406 million into the library last year. Licensing costs are expected to jump to $1.3 billion to $1.4 billion next year, said Arash Amel, research director for digital media at IHS Screen Digest.

That's a lot of dough! Unfortunately, someone is going to have to pay for all that streaming content. If you're a Netflix subscriber (unless you ditched it to watch almost whatever you want), that someone is you. [USA Today]

You can keep up with Jack Loftus, the author of this post, on Twitter


George Stobbart

"how much its subscribers love their DVDs".. You sure its not a matter of how limited the streaming library is in contrast with their DVD library? The only DVDs I bother to rent from Netflix are the ones that I really want to see that aren't available to stream.. pretty sure im not in the minority either...