Netflix pricing theories

> That’s not sustainable for the longer life of DVD’s,” Mr. Swasey said. “We need more revenue. It’s a business concern we have to address. We want two separate business units, each side of the service. We were not able to fulfill the requests for DVDs at that cost. Everything I’m reading about these new Netflix pricing changes suggests to me that this is more about accounting than anything else. Netflix clearly wants to separate the streaming business from the physical DVD business. In every way. Different management teams. Different groups of employees. etc. They even want customers split into those two distinct groups. That’s why you have to sign up for two separate $7.99 plans if you still want to have both streaming and physical DVDs. They will consider you two separate customers.

I wouldn’t be surprised if they didn’t become two separate incorporated entities under the parent company of Netflix. Maybe one of the two will be spun off into some other brand.

There are all sorts of possible reasons for doing this. Maybe it will save them a bundle on taxes. Maybe it will give them far better statistical information to guide future decisions and negotiations with the studios. We’ll probably never know, because the answer is probably not too appealing, from a marketing standpoint. “You’re paying more because we want better spreadsheets” doesn’t give you that warm fuzzy feeling as a customer.

Whatever the reasoning, the representative Pogue talked to isn’t wrong; Netflix will still come out ahead at the end of the day. Because, complain as people might, threaten to leave as they have, there’s still no better deal out there to be had. You’re still getting the best deal with their new prices. So few people will leave Netflix altogether. And those who downgrade to one of the two services will be offset by whatever tax breaks or other internal accounting benefits Netflix gets.

A public company can’t ever charge less than they have to for any product. It’s irresponsible to the stockholders. So the $10 a month combo deal was a mistake, whether Netflix wants to admit this or not. Clearly they could have charged more from the beginning and avoided this whole mess. But once the initial fury dies down, it’ll be back to business as usual. I don’t think this is a long-term problem for Netflix at all.