The price of being able to rent DVDs by mail from Netflix and receive their online streaming service is about to jump by nearly 60% the company announced online yesterday.
The new plan will separate services out into two individual plans – DVD by mail only and online streaming only. Current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into two distinct plans, each costing $7.99 a month. That’s a raise of 62.5% if one wants to keep both their Unlimited Streaming and Unlimited DVDs, 1 out at-a-time, options.
Those wishing to only receive DVDs from Netflix with no streaming will have the option of subscribing to either one of two monthly plans – $7.99 a month for one DVD out at-a-time plan and $11.99 a month for the two DVDs out at-a-time plan.
Needless to say, this has upset a great many people.
But the price hike is not surprising given that Netflix will be facing an alarming rise in content costs over the next few years. A report from CNN Money states that it looks like the company’s cost to license the content it provides to streaming subscribers will rise from $180 million in 2010 to an incredible $1.98 billion in 2012. I guess when we see them looking at a 1100% increase in their costs, a price increase of 62.5% isn’t so bad.
The reason for the cost increases is that studios are suddenly waking up to the fact that online streaming has become increasing popular with consumers and as their license agreements with Netflix come up for renewal, they’re going to hike their prices in order to get a bigger piece of that pie.
And as oppossed to just a few years ago, the studios have the leverage to charge higher rates this time around. Previously, NetFlix was the only bidding on these rights, so the studio’s had to pretty much take what Netflix offered. Now, besides Netflix, the studios have Amazon, Hulu, Vudu and other services all clamoring for content and they can charge what they want knowing that these competing services will pay.
The first sign of this was actually last month when Netflix suddenly pulled hundreds of titles from Sony Pictures – including popular titles like Salt and The Social Network – from its online streaming catalog. It turns out that the contract that Netflix had signed with Starz, the distributor of the Sony material, called for a cap on the number of subscribers who can watch Sony movies online. Once that limit was reached the agreement was rendered null and void. Of course, Netflix can re-negotiate the contract, but you can bet that Starz will be charging a lot more for the license this time around than the estimate $20 to $30 million that they charged when the original agreement was reached in 2008.
And this is not the only cost increase that Netflix is looking at in the immediate future. Starz also controls the online streaming rights for the Disney catalog that Netflix is streaming. Reportedly, the contract for those rights has a similar cap which Netflix is fast approaching.
It’s not as if Netflix has a limited well of funds to draw from to pay for this. Last year, Netflix’s global subscriber base grew almost 70% to 23.6 million users. And as long as Netflix will put out that kind of money for the content, people will keep subscribing to watch it.