Netflix Plan Changes

Netflix announced a split of the streaming and by-mail movie subscriptions last week. The announcement led to an uproar of dissatisfaction with the move, and I saw many comments accusing Netflix of greed.

My opinion is that Netflix certainly mishandled the announcement since it gave no explanation for the changes, but many seem to forget that Netflix is dependent on publishers to provide it with streaming content, and these publishers motive, means, and opportunity to negotiate much higher rates when contracts expire (as long as they can see that Netflix has the profit to support the hike).

That view is confirmed in “Netflix’s vanished Sony films are an ominous sign” by analyst Michael Pachter, who estimates that the cost of Netflix’s streaming contracts will increase from $180 million in 2010 to almost $2 billion in 2012. The increase in streaming contract costs must play some role in the plan changes.

I also expect that Netflix wants to start weaning customers off of DVDs since the cost of that service is much higher for Netflix than streaming – at least until content providers raise costs beyond some threshold.