Whimsical Friday: Good Deal, Netflix New Pricing Model

[Whimsical Friday is a light-hearted note on any technology that impacts our lives in some form or fashion.]

By now everyone is aware Netflix changed their pricing model. What once cost $10 a month — online streams of movies plus one DVD by mail at a time — will now cost $16 a month. However, streaming only will remain $8 a month.

This price increase spurred complaints from thousands of Netflix customers on Facebook and other Web sites, some of whom said they may now rely less on physical DVDs and more on online options; and some saying they are dropping Netflix altogether.

I fit into the first category, “will rely less on physical DVDs and more on online options.” I’m converting my current Netflix account — unlimited streaming with 1 DVD, including blu-ray — for $12 a month to their streaming only option for $8 a month. I’ll rely on Redbox for those occasional evenings when I want a physical disc.

John Blackledge, an analyst at Credit Suisse Securities, states “Netflix must be pretty comfortable with the value of both services that they can break each out. At the same time, increasing the price for DVD-and-streaming customers may push more people into streaming-only plans.” Why would Netflix push their customers into a lower priced plan? Higher profit margins. To send a customer a DVD requires postage, inventory, multiple warehouses, trucks, envelopes, printing, and not to mention the labor that's involved (clerks, logistic personnel, etc.). All of which adds up to a fairly hefty expense. To stream that same movie requires only a small fraction of the DVD delivery cost because streaming is all computerized, no human intervention required per movie request, no warehouses, no trucks, no postage, no printing and no envelopes.

So if Netflix can increase their profits while potentially charging their clients less, more power to them. The ultimate question is when will Netflix's entire library be available for streaming? Currently only about 20 percent of Netflix’s library is available for streaming at any time, with some titles and studios coming and going. If Netflix doesn't address the gap between their DVD and streaming library soon this pricing model could become problematic.

In the mean time, Netflix just saved me $4 a month minus what I may spend monthly with Redbox, which is never more than $4 - 6 ANNUALLY. Sounds like a good deal to me. Redbox is probably saying the same thing.