Netflix Hikes Prices… For Better Or Worse

So I got the following email from Netflix last night:

We are separating unlimited DVDs by mail and unlimited streaming into two separate plans to better reflect the costs of each. Now our members have a choice: a streaming only plan, a DVD only plan, or both.

Your current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:

   Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month
   Plan 2: Unlimited DVDs, 1 out at-a-time (no streaming) for $7.99 a month

Your price for getting both of these plans will be $15.98 a month ($7.99 + $7.99). You don’t need to do anything to continue your memberships for both unlimited streaming and unlimited DVDs.

These prices will start for charges on or after September 1, 2011.

You can easily change or cancel your unlimited streaming plan, unlimited DVD plan, or both, by going to the Plan Change page in Your Account.

We realize you have many choices for home entertainment, and we thank you for your business. As always, if you have questions, please feel free to call us at 1-888-357-1516.

–The Netflix Team

My first reaction was, “Are they serious?  The streamable movies are not that great, and mostly not current, except for a few exceptions, and the so-called Unlimited DVD is still one DVD at a time, and sometimes, means 1 DVD per month.”  I could go to Red Box and get the same DVD for $1.  My first reaction was to cancel the service, luckily I calmed down and didn’t do that, instead electing to wait till the end of my current subscription to cancel the service.

The news of the price hike, surprisingly, was met with happiness by Netflix’s shareholders:

Investors in Netflix – who have already enjoyed a big year on the stock – took some more upside Tuesday afternoon after the company essentially hiked its rates for subscribers who use both its streaming service and one of its mail-order DVD plans.

Around midday, Netflix NFLX announced a plan to separate its streaming and mail-order plans for U.S. subscribers. The rate for the unlimited streaming plan will remain at $7.99 per month, while the rate for a mail-order plan that allows 1 DVD out at a time has been cut to $7.99 per month from $9.99 per month. The cost for the 2-DVD plan was trimmed to $11.99 per month from $14.99 per month.

However, subscribers will no longer be allowed to have both under the same service. So the cost for someone using both an unlimited streaming plan along with having 1 DVD out at a time has jumped to $15.98 from $9.99 – a hike of 60%.

Shares were flat before announcement, but traded up up 1.4% to $294.85 in later action.

The company said in its statement that the change was made “to better reflect the costs of each and to give members a choice.”

Unsaid was the fact that the company now faces little primary competition in this market. Amazon.com AMZN allows subscribers to its Prime shipping service to view a limited number of movies through its own streaming service.

Apple AAPL sells or rents movie downloads a la carte, and Hulu also offers streams at $7.99 a month without having to worry about shipping DVDs and running fulfillment centers.

Some analysts complain that Netflix is over-valued, with a 67% run-up this year and a share price near the $300 mark. Some believe the shares have more room, with the highest price targets currently sitting at $325.

The next catalyst – either up or down – will likely come with the company’s second quarter earnings report on July 25.

However, not everyone was pleased with the news, including over 23 million plus subscribers to the Netflix service:

Netflix’s Facebook page attracted more than 28,000 comments as of Wednesday morning, most of them critical of the move. And thousands of consumers were voicing complaints under #DearNetflix on Twitter….

“The only way that this is terrific for the customer is if you plan to offer your entire collection available for streaming,” wrote Scotty Fagaly, a self-described longtime customer whose comment was “liked” more than 4,800 times. “Otherwise, this is just yet another way to choke more change out of your customers.”…

However, the streaming program’s convenience and ubiquity is sometimes overshadowed by its dearth of quality movies available for streaming, relative to those contained in Netflix’s extensive DVD catalog.

“I realize Netflix cannot stream what the studios do not allow, but this is a disparity that really should be acknowledged in the price scheme,” wrote Travis McClain, a decade-long Netflix subscriber who felt compelled to express his frustrations on the company’s website.

 This prompted The Atlantic to post up an interesting list of “7 Reasons Why Netflix’s Price Hike Is a Bonehead Move,” which lists seven very valid points, and the two most interesting bits of information were:

 Netflix Doesn’t Need the Money

The oddest part about this rate hike is that Netflix doesn’t really need the money. It recently increased its fees (announced last November) by between 7% and 17%. Moreover, its profits have been strong over the past couple of years. And in the first quarter its profit soared 28%. It may want additional revenue to acquire more licensing to stream more titles, but a big rate hike like this may do more harm than good.

Netflix May Lose Money

In fact, this pricing change could easily cause a decline in Netflix’s revenue. Last night, when I got home from work I told my wife about the rate hike. She was coincidentally watching an old Diane Lane movie she found scouring the Netflix streaming library. But without taking a beat, she said, “Oh, we can cancel streaming. It isn’t that good.” If you don’t think a service is worth its price at the moment you’re using it, that’s a pretty bad sign. Many subscribers will agree that streaming isn’t worth the extra money at this time. 

How much could Netflix lose? Let’s do a quick analysis. According to one estimate, about 80% of Netflix subscribers currently have by-mail service that includes free streaming. Of that portion, let’s say half cancel streaming but keep by-mail service. Remember, many people don’t use streaming at all. In particular, if you don’t have an Internet-ready device connected to your television with a Netflix widget, then streaming is far less attractive. Through Netflix’s new pricing, by-mail only service will be about 20% cheaper than the current rate that includes free streaming.

If you assume that all of its revenue comes from subscribers, then its first quarter revenue would decline by 8% to $661.1 million from $718.6 million. This would reduce its profit of $60.2 million by $57.5 million, or by 95%! Netflix will have some subscriber growth as well, but the assumptions above aren’t crazy. If a large portion of subscribers shed their streaming, then Netflix could see a huge hit to its profits. And remember, this assumes that no subscribers cancel altogether. Some will.

 Ultimately, only time will tell if Netflix loses money from this decision, or actually ends up making more money.  But one thing is clear, they are going to lose subscribers.  The best way to view this decision is summed up by Matt Burns in Tech Crunch, whose article is humorously titled “Dear Netflix, Thanks For The Customers!  Signed, Red Box”

I am pretty sure I will be canceling my service in a week or so, when my subscription cycle ends.  And I am pretty sure I am not the only one who feels that way.  Are you going to stay on Netflix, or quit the service in protest?  Ironically, Netflix’s shares rose today, before taking a dive after trading stopped.  THe coming weeks will provide judgment if this decision and business model is successful, which may prompt many other online businesses to consider adopting the same practice of increasing prices while offering nothing new in return.

Dial 911…? After Finishing Tweeting First…

Many of you may have heard the story about Kitty Genovese in 1964.  In case you haven’t, I’ve included the following excerpt that sums up the store.

For more than half an hour 38 respectable, law-abiding citizens in Queens watched a killer stalk and stab a woman in three separate attacks in Kew Gardens.

    Twice their chatter and the sudden glow of their bedroom lights interrupted him and frightened him off. Each time he returned, sought her out, and stabbed her again. Not one person telephoned the police during the assault; one witness called after the woman was dead.

    That was two weeks ago today.

    Still shocked is Assistant Chief Inspector Frederick M. Lussen, in charge of the borough’s detectives and a veteran of 25 years of homicide investigations. He can give a matter-of-fact recitation on many murders. But the Kew Gardens slaying baffles him–not because it is a murder, but because the “good people” failed to call the police.

    “As we have reconstructed the crime,” he said, “the assailant had three chances to kill this woman during a 35-minute period. He returned twice to complete the job. If we had been called when he first attacked, the woman might not be dead now.”

    This is what the police say happened at 3:20 A.M. in the staid, middle-class, tree-lined Austin Street area:

    Twenty-eight-year-old Catherine Genovese, who was called Kitty by almost everyone in the neighborhood, was returning home from her job as manager of a bar in Hollis. She parked her red Fiat in a lot adjacent to the Kew Gardens Long Island Railroad Station, facing Mowbray Place. Like many residents of the neighborhood, she had parked there day after day  since her arrival from Connecticut a year ago, although the railroad frowns on the practice.

    She turned off the lights of her car, locked the door, and started to walk the 100 feet to the entrance of her apartment  at 82-70 Austin Street, which is in a Tudor building, with  stores in the first floor and apartments on the second.

    The entrance to the apartment is in the rear of the building  because the front is rented to retail stores. At night the quiet
neigborhood is shrouded in the slumbering darkness that  marks most residential areas.

    Miss Genovese noticed a man at the far end of the lot, near a  seven-story apartment house at 82-40 Austin Street. She  halted. Then, nervously, she headed up Austin Street toward  Lefferts Boulevard, where there is a call box to the 102nd Police Precinct in nearby Richmond Hill.

    She got as far as a street light in front of a bookstore before the man grabbed her. She screamed. Lights went on in the 10-story apartment house at 82-67 Austin Street, which faces the bookstore. Windows slid open and voices punctuated the early-morning stillness.

     Miss Genovese screamed: “Oh, my God, he stabbed me! Please help me! Please help me!”

     From one of the upper windows in the apartment house, a man called down: “Let that girl alone!”

    The assailant looked up at him, shrugged, and walked down Austin Street toward a white sedan parked a short distance
  away. Miss Genovese struggled to her feet.

     Lights went out. The killer returned to Miss Genovese, now trying to make her way around the side of the building by the
  parking lot to get to her apartment. The assailant stabbed her again.

    “I’m dying!” she shrieked. “I’m dying!”

    Windows were opened again, and lights went on in many apartments. The assailant got into his car and drove away. Miss Genovese staggered to her feet. A city bus, 0-10, the Lefferts Boulevard line to Kennedy International Airport, passed. It was 3:35 A.M.

    The assailant returned. By then, Miss Genovese had crawled to the back of the building, where the freshly painted brown
  doors to the apartment house held out hope for safety. The killer tried the first door; she wasn’t there. At the second door, 82-62 Austin Street, he saw her slumped on the floor at  the foot of the stairs. He stabbed her a third time–fatally.

    It was 3:50 by the time the police received their first call, from a man who was a neighbor of Miss Genovese. In two minutes they were at the scene. The neighbor, a 70-year-old woman, and another woman were the only persons on the street. Nobody else came forward.

    The man explained that he had called the police after much deliberation. He had phoned a friend in Nassau County for  advice and then he had crossed the roof of the building to the  apartment of the elderly woman to get her to make the call.

  “I didn’t want to get involved,” he sheepishly told police.

    Six days later, the police arrested Winston Moseley, a 29-year-old business machine operator, and charged him with homicide. Moseley had no previous record. He is married, has two children and owns a home at 133-19 Sutter Avenue, South Ozone Park, Queens. On Wednesday, a court committed him to Kings County Hospital for psychiatric observation.

    When questioned by the police, Moseley also said he had slain Mrs. Annie May Johnson, 24, of 146-12 133d Avenue, Jamaica, on Feb. 29 and Barbara Kralik, 15, of 174-17 140th Avenue, Springfield Gardens, last July. In  the Kralik case, the police are holding Alvin L. Mitchell, who is said to have confessed to that slaying.

    The police stressed how simple it would have been to have gotten in touch with them. “A phone call,” said one  of the detectives, “would have done it.” The police may  be reached by dialing “0″ for operator or SPring 7-3100.

    Today witnesses  from the   neighborhood, which is  made up of one-family  homes in the $35,000 to $60,000  range with the exception of the two  apartment houses near  the railroad  station, find it difficult to explain why  they didn’t call the police.

    A housewife, knowingly if quite casually, said, “We thought it was a lovers’ quarrel.” A husband and wife both said, “Frankly, we were afraid.” They seemed aware of the fact that events might have been different. A distraught woman, wiping her hands in her apron, said, “I didn’t want my husband to get involved.”

    One couple, now willing to talk about that night, said they heard the first screams. The husband looked thoughtfully at the bookstore where the killer first grabbed Miss Genovese.

    “We went to the window to see what was happening,” he  said, “but the light from our bedroom made it difficult to see the street.” The wife, still apprehensive, added: “I put out the light and we were able to see better.”

    Asked why they hadn’t called the police, she shrugged and replied: “I don’t know.”

    A man peeked out from a slight opening in the doorway to his  apartment and rattled off an  account of the killer’s second attack. Why hadn’t he called the police at the time? “I was tired,” he said without emotion. “I went back to bed.”

    It was 4:25 A.M. when the ambulance arrived to take the  body of Miss Genovese. It drove off. “Then,” a solemn police detective said, “the people came out.” 

 That was over forty five years ago.  And yet the same concerns exist even today.  But it’s not concern for safety that prevents some people from contacting help.  The culprit is actually social media.  A recent newspaper commentary discussed the case of Bill Nye the Science Guy, who apparently passed out during a show, and everyone in the audience begin to tweet about his passing out, but no one approached him to check on him or call for assistance.

My wife pointed me to an LA Times story a couple of days ago that made me cringe… The article recounted how TV personality Bill Nye (“The Science Guy”) suddenly passed out while speaking at USC. While this caused a tense moment, he appears to be okay now. However what incensed me was how the crowd reacted. Witnesses noted the crowd did nothing, they did not come to his aid, and they were of no help to Bill whatsoever. But the audience was oh-so quick to grab their phones and tweet/IM/Facebook about what they were watching. Therein lies the problem – they were watching, not acting. In today’s post I’m going to explore responsibility as it relates to social media – the responsibility that comes with living in the real world vs. a perpetual state of virtual reality.

As most of you know, I’m a big fan of social media. I use it personally and my company has a social media practice area which offers social media services to our clients. But when social media addiction takes precedence over common sense, over helping another human being, it may be time to reassess the world in which we live. Social tools, platforms and networks are meant to be conduits to broader and deeper relationships. The real benefit of social media is in improving how we interact not in creating barriers to engagement. The digital world is at its best when it brings us closer together and at its worst when moves us further apart.

 Is there a concern that social media like Facebook and Twitter are creating a disconnect in human society?  Some may wonder if the same response would have occured if it was clearly life threatening or a crime was occuring (since Bill Nye has been known to use dramatic flair in his presentation.  A CNN article tells the story of a New Jersey Pastor who recently asked 50 Church Elders to stop using Facebook or quit, after 20 couples experienced marriage difficulties due to adultery as a result of reconnecting with former exes on Facebook .  He continued by asking that members of his congreation also stop using Facebook, although it was not a demand.

A New Jersey pastor is asking married  members at his church to delete their Facebook accounts because he says it encourages adultery.

The Rev. Cedric Miller of Neptune  made the demand after 20 couples at his church ran into difficulties after a spouse reunited with an old love interest, the Los Angeles Times reported in an article.

The article, which quotes an Associated Press story, says Miller had asked married couples in his church to share their Facebook passwords with spouses, but couples still ran into problems.

Miller, pastor at the Living Word Christian Fellowship church, says he’s now demanding that 50 married church leaders delete their Facebook accounts or resign.

Anthea Butler, a columnist with Religion Dispatches magazine, says Miller is invoking an old theme in fundamentalist and conservative churches: that any new media – like movies, television and radio – is  sinful.

What is interesting to me is that the conservative Christian cry used to be stop watching porn on the internet, or  your kids would be pimped out on the internet by perverts. Now, social media has become the latest “sinful” activity.

Still, Butler in her column entitled, “Facebook: Internet Highway to Hell,” says she could sympathize with the pastor.

So I am not surprised that the pastor is demanding all of his leadership cease and desist from Facebook. After all, looking up an old flame or your teenage dream à la Katy Perry is just the first step down the road to perdition – especially if your home life isn’t exactly what it used to be.

Ironically, at the end of the CNN article was an option for readers to “Like” the article via Facebook’s “Like” function.  Is Social Media to blame for societal faults?  Did television and radio face the same challenges when they first became available?  I would hate to imagine the level of protests that will occur when Virtual Reality becomes a reality, and are actually used as tools to simulate the sesnse as shown in the movies “Demolition Man” and “Artificial Intelligence.”

Am I being alarmist?  Probably not, as Virtual Reality glasses for computer gaming is already on the market, and is likely to be a direction that the gaming and entertainment industry will head towards.  After all, six television manufacturers have announced the release of 3D televisions, that utilize 3D glasses.  And to top that, Toshiba has announced that it will soon be releasing a 3D television that does not require glasses.

It may not be long before virtual reality makes us forget to live, as suggested in the Bruce Willis movie, Surrogates.  Is technology de-humanizing us?  Or have we already been on this path already, as evidenced over forty five years ago, on the fatal day 38 people stood by and watched Kitty Genovese get attacked not once, twice, but three times in a 30 minute span.  And the call to police, which would have taken seconds to do, was only made after she had already been killed.

It seems we are the means of our own destruction.