Reason #5: If 50% of by-mail subscribers stop streaming, Netflix's profit could drop 95%
If you're a Netflix disc-by-mail subscriber, then you got a very irritating e-mail yesterday. The company announced new pricing plans, through which it intends to break out the costs of streaming and by-mail services. Currently, anyone who subscribes by mail can stream at no additional cost. While the concept of a la carte pricing for these services might be well-intentioned, the company's execution was not. This move is misguided for at least seven reasons.
It Amounts to a Giant Price Hike
This new strategy by Netflix will not be perceived by consumers as a way to empower them to decide whether they need streaming or not. To accomplish that result, Netflix should have left the total price for by-mail plus streaming unchanged, but broke the two out and allowed customers to stop paying for one or the other. Instead, it will slightly decrease the cost of its by-mail service and will require customers who want to keep streaming as well to pay a significant premium. As a result, the move will be interpreted by customers as a rate hike, not a move meant to provide them more flexibility.
No Value Added
If you're on the one DVD-by-mail plan, then you currently pay $9.99 per month and enjoy streaming as part of the deal. To continue to stream, you'll now have to pay $15.98. That's a 60% increase! Now if Netflix was suddenly offering its entire library via stream or providing some other additional service, then customers might be able to stomach this rate hike. It isn't. They're getting the same services they got before, but now Netflix is charging much more money for them.