Netflix may have bet too heavily on digital media, discounted DVD staying power
July 17, 2011 | 3:18 pm
Netflix recently caused a stir when it decided to split its formerly-all-inclusive, DVD-rental-plus-streaming subscription fee into two separate subscriptions, effectively nearly doubling the price to those who wished to continue both streaming and receiving DVDs. A number of Netflix subscribers have been up in arms over this change.
Gizmodo points out that this shows demand for DVDs is still tenacious—perhaps more so than Netflix expected when it bet so heavily on the streaming future. It costs Netflix as much as 75 cents each time it rents a DVD through the mail, while it may only cost 5 to 10 cents each time it streams a movie. Netflix needs to cut its costs while raising revenues—while it’s cheaper to stream a movie once Netflix has it, licensing films is proving costly.
It’s a bit ironic—in the past I’ve written that Netflix got the jump on Blockbuster by betting heavily on the streaming future from the very beginning. (And indeed, in October 2009 David Rothman linked to a blog post (which is, unfortunately, no longer available) about Netflix’s CEO claiming DVD only had two years left.) But now it looks like Netflix may have overestimated its customers willingness to call rather than fold on that bet. Of course, the fee hikes may help Netflix, by driving away those who only wanted DVDs, increasing the fees paid by the ones who remain, and eliminating DVD costs altogether for those who move over to streaming. And perhaps this will lead to Netflix being able to add more titles to its streaming library.
Regardless, this should also be a lesson to e-book vendors about demands for old versus new media: much as consumers seem to be flocking to e-books now, there will still be a significant demand for printed books well into the future.