Voice of Objectivity: Netflix Had No Choice

Voice of Objectivity is an ongoing column meant to temper the tendency of the Techcited to run away with the most exciting or controversial ideas in technology’s near future. The opinions presented here do not necessarily represent the views of Techcitement or this writer. Someone’s got to keep a cool head around here. I guess I’ll just have to pretend it’s me.

Netflix drew down an almost alarming degree of customer backlash two weeks ago when they announced a major change to their pricing structure. Price increases are never popular with consumers, of course, but Netflix didn’t make a small change here. It’s not every day that companies announce a 60% increase in price and no added value for so many of their customers.

The customer outrage has been enormous (Blockbuster tried in a poor way to take advantage of it), and in many ways is completely justified. Streaming service was originally an added bonus on any DVD rental plan. Then, customers got the option to pay for streaming without the discs, and suddenly, the relative value of Netflix’s products was completely reversed. Streaming was no longer a bonus, it was your primary service. You paid $8 for streaming and could add another $2 if you wanted DVDs, too. By devaluing the DVD, Netflix brought us closer to the end of the era of physical media.

But Netflix doesn’t operate in a vacuum. Ambitious as their goals may be, the company has a major flaw revealed by the new pricing. Netflix operates at the mercy of an industry that fears the devaluation of the DVD that Netflix has always represented. The content providers see withering DVD sales and fear Netflix, and its rivals, as a future that challenges their traditional means of selling products.

What this means in the big picture is that Netflix relies for its survival on the good graces of companies with an interest in seeing it, and indeed all digital content distribution, fail. In the case of Hulu, that interest means content providers selling a successful property, presumably in the hopes that it will be less successful without their backing. In the case of Netflix, that interest manifests in ever more difficult licensing deals.

That is what Netflix’s new pricing is really about. This is not a greedy attempt to drag more money out of customers. It’s Netflix finding the resources they need to improve their service for customers. We all know how minimal the streaming selection is on Netflix, and the only remedy for that is to throw enough money at the major studios that they finally want Netflix to succeed.

There’s no question that the outrage loyal customers are feeling right now makes sense, but Netflix is in a tough position. They’ve made a conscious decision to risk losing customers who favor their old business model, so that they can better serve customers who keep up with the company’s own drive toward the future. That’s why pricing didn’t change for the streaming-only plan. In the next few months, we’ll learn if their gamble paid off. In the meantime, let’s reserve judgement on this move until we see what kind of new content deals Netflix can bring us. Here’s hoping it’s a lot better than some DreamWorks stuff in two years.