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Why Netflix changed its pricing plans

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Why Netflix changed its pricing plans

Postby skynet » Tue Jul 12, 2011 12:27 pm

Get ready for massive price hikes from netflix. There are a lot of things wrong with this, but it's not worth the time to get into. This just satisfactory DVD/streaming service just took a dump in my book.


Why Netflix changed its pricing plans

Netflix updated its pricing Tuesday, removing the ability to combine DVD-by-mail and streaming plans and effectively forcing subscribers to choose one or the other. For those that wish to continue using both services, the change effectively raises the price of a combined plan by 60 percent, which has already caused some subscriber unrest on the blog post announcing the change and around the Internet. But why did Netflix make the change?

Ultimately it comes down to money, as Netflix VP of Marketing Jessie Becker acknowledged in the company’s blog post. “Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs,” she wrote.

The cost of its DVD-by-mail operations isn’t supported by the $2 per month in additional revenues that Netflix gets from the previous add-on plan. While much of the infrastructure investment is a sunk cost and has been amortized over the years, supporting ongoing DVD operations isn’t a winning strategy for a company that is betting big on streaming. The cost of postage alone argues against such a heavy discount for a continued DVD-by-mail plus streaming offering.

But there’s another reason why Netflix is making this change: By forcing subscribers to choose, it’s likely betting that most will go streaming-only, thereby lowering the infrastructure costs of supporting them. As we wrote last year, the real cost of its streaming service isn’t defined by video storage, delivery or other infrastructure, but in the acquisition costs that come with it. That gives Netflix the ability to better manage its costs as it decides which content to invest in.

From an investor standpoint, splitting up Netflix’s operations more clearly into streaming and DVD-by-mail services could also give further transparency into its business. Doing so would enable it to break out operational costs from its DVD and streaming units, something that it has been unable (or at least unwilling) to do so thus far. With a management and organizational structure that clearly defines operations into separate units — streaming, DVD and international — financial analysts and investors will get a better idea of what’s driving revenues and costs. This could happen as soon as the fourth quarter of this year, once subscribers have been moved into one plan or another.

And finally, while Netflix weens subscribers off the combined plan and onto either a DVD- or streaming-only plan, there’s a side benefit to breaking up its plans and effectively raising rates for those who subscribe to both: In the short term, at least, we’re likely to see those who subscribe to both plans effectively subsidizing content acquisition costs for its streaming-only plan — except they’ll be doing so at a higher rate ($7.99 versus $2 a month) and with more transparency.

If Netflix does break out financial operations in the coming quarters, as we suspect it will, we could see whatever profits might come from a combined plan or DVD-only being shuffled to support content acquisition, as Netflix invests ahead to support more aggressive subscriber growth, both in the U.S. and internationally.

Original article:
Why Netflix changed its pricing plans

Netflix increases prices for streaming, DVD packages
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Re: Why Netflix changed its pricing plans

Postby skynet » Tue Jul 12, 2011 12:30 pm

Along with ISPs charging more for bandwidth....if you want to stream movies you will be paying a lot more.

Netflix said Friday that moves by Internet service providers to charge users by the amount of data they use could end up costing consumers more.

Netflix criticizes new Internet billing by bits
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Re: Why Netflix changed its pricing plans

Postby Greg B » Tue Jul 12, 2011 9:34 pm

It's all BS. There's umpteen miles of fiber optics waiting to go online but the powers that be won't open them up even when the President said to do so years ago.

They just have to attach a fake shortage on anything we use so they can charge us more.
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Re: Why Netflix changed its pricing plans

Postby JDC » Wed Jul 13, 2011 4:47 pm

To me, I think the real reason for the price increase is that most of the deals Netflix has with the studios ends next year and all the studios want a bigger piece of the pie.

When the Elephants dance, the mice get trampled.
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Re: Why Netflix changed its pricing plans

Postby skynet » Wed Jul 13, 2011 8:29 pm

And why do these things happen? All in the name of money from all sides of the table. It's absolute rule and abuse never ends.
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Re: Why Netflix changed its pricing plans

Postby skynet » Wed Jul 27, 2011 1:53 pm

Minor set back....

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Just two weeks after announcing a price adjustment that angered many customers, Netflix came out Monday with a weaker-than-anticipated earnings outlook.

While the entertainment distributor reported a 52 percent rise in second-quarter revenue, it also reaffirmed a temporary slowdown in subscriber growth and said that its third-quarter revenue would be hampered by reactions to the price change. Netflix stock, which peaked above $300 earlier this month, dropped 10 percent in after-hours trading Monday, after closing at $281.53 earlier in the day.

Netflix Sees Angry Clients Cutting Profit
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Re: Why Netflix changed its pricing plans

Postby skynet » Fri Sep 16, 2011 12:46 pm

Oops....guess it was a bad call. The Netflix price hike is costing them more than expected.

The announcement by Netflix that it estimates a one million subscriber loss is not much of a surprise if you think about it. The market's reaction to the news didn't help them as their share value dropped about 20% in one day.

They adjusted subscriber estimates from 25 million to 24 million and said that their financial projections for the quarter will not be affected by it. But shares fell $40 on Thursday after the announcement.

The company said that it knew the decision to raise pricing and split their services up had "upset many of our subscribers, which we don't take lightly, but we believe this split will help us make our services better for subscribers and shareholders for years to come." It's just too bad that their current subscribers and shareholders don't seem to agree as strongly.
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Re: Why Netflix changed its pricing plans

Postby skynet » Tue Sep 20, 2011 7:03 pm

Most people seem to think that having both the DVDs and streaming on one website is much better and far more convenient. I completely agree. I also have to wonder, why couldn't netflix just keep everything like it was and then drop the DVD rentals when DVDs actually became irrelevant? Why do they have to go through the trouble of splitting the company in half into two separate companies and then disturb all their customers? It's pretty odd behavior and makes you think there could be some other reasons behind the scenes. Or why couldn't they wait at least another few years before doing something so drastic? They could've made it a more gradual process so they wouldn't freak everyone out. I don't think DVDs are going to disappear any time soon, at least I hope they don't. Streaming movies is not really that great yet. If you lose your internet or the speeds are slow, you're out of luck. I don't see reliable gigabit internet being hooked up anytime soon. A DVD player will keep on going unless you spill coffee all over it or the DVD is messed up (which is pretty rare). Anyway, the whole thing is silly to watch. I was already debating whether it was worth keeping the cheapest DVD plan from netflix and now I'm very close to closing the account. Who needs the extra hassle these days, especially when good movies are also hard to find?

Read more about this here: Is Netflix As Dumb As It Seems?

In case you missed this above: Gigabit Internet (is still going to suck)
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