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Netflix's new pricing scheme

Consumer Reports News: July 13, 2011 12:23 PM

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For more than a decade I've been a big Netflix fan, even back when it took a few days to get a disc in the mail and there was a Blockbuster outlet—plus a few independent video stores—just a block from my NYC apartment.

But even though my situation has changed—I'm now a parent and living outside the city—I've still been a big Netflix fan, getting Blu-ray discs by mail to play in my dedicated basement home theater, and streaming videos in other rooms of the house. Even though I'm paying a $2-per-month premium for Blu-ray movies, I'd argue that Netflix has been among the best bargains in our home.

But that's all about to change, thanks to Netflix's new pricing scheme that for me will constitute a 50-percent increase; it could be even more for those on a different plan. And this comes after the company raised rates last fall by a range of 7 percent to 17 percent, and at a time when the the tough economy if forcing many of us to find ways to trim our budgets, not spend more. (Check out How pricier Netflix stands up to other options for more details.)

Essentially what's happening is that Netflix is eliminating unlimited streaming as part of its DVD rental service, and instead is now charging separately for disc rentals and video streaming. The new pricing is effective immediately for new users, and kicks in on Sept. 1st for existing Netflix customers like me.

Here's how it will work for my family: Currently I pay about $12 per month for a basic $9.99 one-at-a-time DVD plan, plus a $2 premium to get Blu-ray versions of the movies when available. Frankly I didn't like having to pay more for the Blu-ray version, especially since its no longer a new format with higher manufacturing costs. But I've been willing to pay the premium for the best picture quality in my home-theater, and for the lossless higher-resolution audio formats (DTS-HD Master and Dolby TrueHD) included on most Blu-ray discs. With this plan, I got free unlimited streaming of any of the available movies and TV shows.

But under the new pricing scheme, I will have to pay $8 per month ($7.99), plus a $2 monthly Blu-ray fee, to get discs, plus another $8 per month ($7.99) for unlimited streaming. So my monthly subscription will jump from $12 to $18, a 50 percent increase. Those on the current $10 per-month plan will now have to pay $16 each month just to maintain their current level of service, a whopping 60-percent increase. The only ones to benefit are basic DVD subscribers who don't want streaming, who'll see their monthly subscription decrease slightly.

Given the timing of the increase, it makes me think that either Netflix is assuming its costs—both movie licensing and recurring broadband fees that cable companies are trying to impose on traffic traveling through their networks—are going to significantly increase, or it really wants to get out of the disc business, which has sizable physical distribution costs.

While I don't like to see my subscription fees double, my other objection is that Netflix is raising prices without any clear improvements to its service. For example, while streaming has become a common option for my family, especially my 7-year-old son, only a very small percentage of the titles in my queue are available for streaming. Also, the company has signed "delayed window" deals with several major studios, including Fox, Sony Pictures, and Warner Bros., where it agrees not to rent a movie for the first 28 days after it goes on sale. While the deal gets Netflix lower rates from the studios and presumably at some point greater access to movies it can stream, it means its customers now have to wait nearly a month to get many of the latest releases available elsewhere.

So while I quietly abided prior Netflix price increases in the past and silently acquiesced to the $2-per-month Blu-ray surcharge, I'm finding this latest increase hard to take, especially give Netflix's limited library of streaming movies and shows. I'm simply being asked to pay more to get the same. As a result, for the first time in nearly a decade dropping Netflix entirely is a real consideration for my family. At the very least, I'll be checking out other options, such as Redbox Blu-ray rentals, and other streaming services such as Hulu Plus and Amazon (free with Amazon Prime). I already have access to Vudu on several devices, and its HDX format offers better picture quality than I can get with Netflix.

So congratulations, Netflix—you've now accomplished what none of your competitors have so far been able to do: Make me think of dropping you for another service.

We'd like to hear what you think about Netflix's new pricing strategy, and how you'll react if you're already a subscriber. Let us know if there are other services you think are worthy of consideration.

Netflix blog: Netflix Introduces New Plans and Announced Price Changes

James K. Willcox

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