For several years, the exceptional value of Netflix streaming and mail-order DVD rentals has caused near-universal shuttering of movie rental shops – most notably longtime king of the mountain, Blockbuster Video. The growing Netflix streaming library, included as a complimentary feature in all but the “budget” plan, is a major draw for movie and TV fans alike – and now appears on a myriad of hardware platforms including select Blu-ray players, PlayStation 3, and Xbox 360, among others.

However, on September 1st, the Netflix streaming honeymoon is over – as the service will now be charging a separate fee for the feature representing a 63% price hike for users on the 1 DVD + unlimited streaming plan.

On a recent post to the official Netflix blog (as well as customer e-mails), Jessie Becker, Netflix Vice President of Marketing, introduced a series of controversial changes to the company’s service plan offerings – sparking an outcry of angry responses on Facebook and Twitter.

Before we breakdown the changes, it’s important to note the new prices/plans are effective immediately for new customers – and will go into effect for current members on September 1. Becker had to know that the changes would be met with frustration because the lead-in to the announcement was exceptionally brief – i.e. “Jessie Becker, here to share two significant changes at Netflix with you.”

The Netflix executive then went on to break down the changes – which represent a significant price increase on a service that (for many) is still a significant value:

“Separating unlimited DVDs by mail and unlimited streaming into separate plans to better reflect the costs of each and to give our members a choice: a streaming only plan, a DVD only plan or the option to subscribe to both.”

“Launching new DVD only plans. These plans offer our lowest prices ever for unlimited DVDs – only $7.99 a month for our 1 DVD out at-a-time plan and $11.99 a month for our 2 DVDs out at-a-time plan.”

As a result, members who enjoyed the $9.99 a month membership (unlimited streaming and unlimited DVDs) will now subscribe to two plans: $7.99 for unlimited streaming (no DVDs) plus $7.99 for unlimited DVDs, 1 out at-a-time (no streaming) – totaling $15.98.

The changes are couched in a consumer-friendly angle, where Netflix seeks to offer lower prices to DVD-only customers (since they won’t be using streaming) as well as offer more consumer-specific customization (for customers that still want streaming – but might not be interested in DVDs).

It’s obvious that (in the long run), Netflix will continue to invest more and more resources in the streaming end of their business – given the especially high overhead associated with mail-order rentals and distribution centers. No doubt, the move is primarily fueled by the company’s interest in pushing more people into their streaming service (which has a significantly lower operating cost). However, in recent years, studios have started demanding a lot more money for streaming rights – since it’s quickly becoming a preferable method for savvy movie and TV fans as well as much more widely utilized by mid to late adopters. As a result, they’ll need a more effective revenue model for that side of the service – so they can change unlimited DVD and streaming prices over the years without having to alter a core package.

Admittedly, for many consumers, the announcement came out of nowhere and, as a result, left an especially bad impression on some members – due mainly to the severity of the cumulative price hike.

That said, Netflix still represents a great deal for movie and TV fans – especially as the streaming library continues to grow. Considering the increasing cost of catching a movie in theaters, the convenience of both the DVD and streaming services – not to mention the value of discovering and testing-out obscure films and TV shows without risk (since you won’t spend money on a dud) – even for $16.00 a month, there’s next-to-no current competition that can compare to the Netflix offerings. While the streaming option certainly has a lot to offer (and will continue to grow), the Netflix DVD library still contains a lot more titles than the online-only option. Hopefully, along with the price hike, the company will continue to secure more high-profile program offerings for the streaming service (such as the recent announcement of Mad Men seasons 1-4 on Netflix).

In the end, consumers have a couple of options (obviously neither will be preferable to the current model).

  • Live with the price hike – Netflix is a business and businesses have the right to raise their prices (as high as they see fit) – even if it’s frustrating to consumers.
  • Select a different plan (or even cancel your membership) when the price hike arrives on September 1 – Consumers vote with their wallets. If the updated prices seem unfair, or you feel taken advantage of, give Netflix less money. If enough people join in, you can bet Netflix will be a little more careful the next time they raise prices (and they will).

Follow me on Twitter @benkendrick — and let us know what you plan to do with your Netflix account in light of the price hike.

Source: Netflix