This Monday, I got some uplifting news in my Inbox—the nice folks at Netflix are going to “bring me even more exciting, new entertainment”! I was chuffed with pride, that they’d do this for me, personally. Then I realized you got the same email, along with 75 million of our closest co-streaming friends:
“Hi Mike,
Thanks for letting us entertain you since 2004. Starting May 6, we’re updating our prices to bring you even more exciting, new entertainment. Your monthly total will increase from $26.98 to $29.98.”
I read it more closely. They said the quiet part in bold. This brave new world of streaming was going to cost me an additional +11.1%. I was going to politely demur, as I am quite happy with the current level of excitement and entertainment I was already getting. Sadly, I could not find the button for “Nah, I’m good.” It’s just yet another price increase.
The smarmy corporate spin jobs that chaperone these unwanted budget-buster notices have become so ubiquitous that we barely get nauseous any longer. These mendacious misdirections do not even work on a gullible, optimistic and satisfied customer like me. If you know a PR guy, maybe let them know that gaslighting your customer base isn’t such a great strategy.
The timing of this notice was interesting. Everyone “knows” that you put out bad news, notices, and releases on Friday afternoon—the “taking out the trash” tactic. Netflix knows this, and doubled down on the strategy a few years ago after running into a buzz-saw of negative reaction from their increases in 2016 and earlier in 2011, when they almost broke Twitter. So, in January 2022 they buried their price bump on the Friday before the MLK (3-day) weekend…and it worked. But this week, they served up the happy news to me early on a Monday morning. Coffee and consternation. Pretty bold of them.
Focusing on a single price increase would give an incomplete picture, when there’s clearly a long-term re-pricing strategy at work. I pieced together all Netflix price changes since they rolled out their multi-tiered streaming plan in 2013 (chart atop this article).
Looking back over the past 10 years, the $20 Standard plan today is double the 2016 price of $10, which followed their first major price increase from the “initial” $8. With 6 price increases over 10 years, Netflix was up +100%, which is +7.2% compounded annually. The pricier Premium plan is up to a whopping 2.25x its 2016 price, which is +8.4% annually. How does that compare to (~3.3%) inflation over the same period? The most-popular Standard plan has increased 2.16x the overall inflation rate, while their Premium plan was up 2.54x inflation.
But your mileage may vary. The fine print is a killer here. Until recently, your account would cover multiple locations; in practice, a family member could piggy-back on your Netflix. Then, exactly 3 years ago, that changed, and free sharing ended. I’m a sharing-is-caring kind of guy, so I went ahead and paid the new 50%-ish upcharge so our son’s family could watch Netflix as well. So my old $10 monthly charge has turned out to be not $20 today, but $30. That increase is so shockingly huge that I lack the math skills to calculate the annual increase; although it surely must be very high.
Well, at least the no-frills 75-inch TV you watch it on has dropped from $4,000 to about $800 over that decade. As it was explained to me in business school, you want to sell the razor blades, not the razors!
This pricing history reveals a few business secrets that I’m inferring as a strategic shift by Netflix. Look at the key facts: they began an “Ad” tier in 2022; they let their cheap Basic plan die in 2023; they’ve increased Standard pricing by more than Ad-tier, and Premium pricing by much more. This all tells me that Netflix sees their future as increasingly reliant on delivering ads—as presumably there must be more profits in that delivery channel. If you want to migrate large slices of customers to a budget-priced, lower-value (but higher-profit) tier, you need to make the pricing differential significant enough for customers to notice, jump, and grab the savings. So “Basic” tier had to go, to reduce confusion and make the price-drop to Ad-tier appear as large as possible. As well, the higher-priced tiers had to play chicken with that critical $20 price-point, to make $9 seem like a no-brainer to their value-oriented streamers. All while simultaneously squeezing those stubborn high-end high-value customers to make them profitably worthwhile, even if they don’t get your message about strategic direction. They’ve optimized price discrimination, which sounds like something horrible, but in business economics is a desirous marketing strategy to monetize across classes of customers that you’ve managed to lock in with network effects. The clear industry move to an ad model concerns me. This is where one of the grand promises of streaming (better product, lower cost, no ads) goes to die.
I know you want me to complain vociferously about this—but that’s Reddit’s job. Pile on if you like; you’ll find a rabbit-hole chock full of angry (ex-?) subscribers. You can even cheer for Italy, whose courts, last week, ruled that a series of Netflix price increases (see 2017-2024 on the above chart) were an illegal breach to the country’s national consumer code, demanding that Netflix provide both refunds and reductions. I’m cheering and shaking my head at the same time, as price controls generally never lead anywhere good; so please, let’s not go down this meddlesome road in the U.S. As an aspiring capitalist, I love almost nothing more than helping the baller de jour and the latest Hollywood superstar [sic] rake in more coin this season than you will in a lifetime. But seriously, Netflix should price as they choose, just as we are free to subscribe, cancel, or change to a better-value tier, or even a competitor. They say “freedom isn’t free”; here, it seems to run about $20 per month.
No, I actually wrote this because poring through all this history resulted in a colossal case of nostalgia. Happy thoughts of Netflix Past have suffused me—cheerful times before the Dickensian ghosts of Streaming Present and Future infected and reshaped my entertainment landscape. I’ve been sending Netflix money, continuously, for longer than most college students have been alive, and for several years before Netflix even offered streaming. On a personal note, I have never Netflix and Chilled, as I won’t be subject to the slipshod syntax of employing “Netflix” as a verb. I just missed being in their first-million subscribers—there was no prize for this, I did check.
The movie-watching process of 20-25 years ago must seem ridiculous and cumbersome to today’s streaming-savvy whiz kids. You could search TV Guide or a functionally-deficient cable list and hope a good movie would be on in the near future (and maybe DVR it). You could get in your car, go into a video store, hope their limited selection offered something, and then, after watching and Being Kind, Rewind, you could drive back and return it. Or you could join Netflix, which had whatever you wanted, order it, and in a couple days (usually) you could watch the DVD they mailed you. While these all must sound silly today, I can testify that the old-timey Netflix process was a significant source of pleasure for my family, back then.
The process of picking what to get was ahead of its time, and was nearly as enjoyable as actually watching the movie. The massive jump from TV Guide or a list search, to being able to see everything about the movie, watch a trailer (in many cases), was an experience boost that’s hard to comprehend today. The anticipation, much like that old ketchup commercial, was more of a blessing than a curse; looking forward to that red envelope’s arrival could bring some positive vibes even to a rough day. Also, unlike today’s frustratingly fragmented streaming landscape, Netflix of 15 years ago had nearly 100% inventory coverage of the available DVD space. There’s something to be said for one-stop shopping.
Even with the mail delay, there were typically one or two DVDs sitting on my mantle on any given day. My history reveals I watched typically 3 DVDs a week (it’s on your permanent record just like everything you did in high school). The tangible aspect of all this is underappreciated. The actual arrival of the physical content in the mailbox, the opening and reading the description on the sleeve, its demanding presence on the mantle (“Watch Me!”), the two hours of movie watching, but also the “DVD extras, commentary,” etc. that could keep you in this blissful movie world a bit longer…these were all part of the suite of features in that Netflix product. Even dropping it in the mailbox immediately led to the happy anticipation of the disc they’d send you next. The tangible aspect of the product led to massive engagement in a host of subtle ways. Businesses work very hard to get that level of customer engagement, and Netflix nailed it in their early years. Most of that is missing today.
The other bit of make-me-smile Netflix nostalgia is The Queue. You’d list out the movies you wanted delivered, and you could see and manage your Queue on the web site. This was one of the most genius customer-engagement features ever conceived. Before the Queue, you’d have, for example, 3 rows showing your 3 DVDs, and you’d just tell them what to replace each one with, essentially in real-time. But early on, Netflix figured out that they could get you to spend serious time on their site by letting you list out your next dozen, or hundred, or thousand titles you wanted to see. If they had a max, I certainly never hit it. This suddenly turned millions of regular folk into instant movie auteurs, and convinced most subscribers to dive deep into Netflix’s extensive catalog. There’s a sample Queue from 2015 atop this article; one could rank Leonard Part 6 as seventh in their queue, with no shame:
You really didn’t need to use the Queue at all…but you wanted to. Time spent maintaining The Queue wasn’t work—like walking the dog or waxing your sports car on a spring day, it brought unbridled joy. You could reorder, alternate genres, integrate old classics, put this week’s hot release up to #1, and really spend as long as you desired in the magical world of Hollywood. A few minutes spent refreshing your Queue, and you felt like you’d actually accomplished something! It was cheap, clean fun, and you could learn some entertaining things about your spouse during edifying discussions about the Queue.
Not only was The Queue of DVDs an integral part of the Netflix experience—even more so, you couldn’t even imagine leaving Netflix once you’d arranged the next 20-50 weeks of your movie-watching life in this, your very own personalized list of future fun. You were completely locked in, and you were happy to be hooked in such an engaging way. Sure, there are various lists and bookmark functions in streaming today, but they’re unimportant to the process, non-engaging, and provide essentially none of the customer “ownership” that the old Queue did. From a marketing and strategy perspective, I find it amazing that a company would willfully destroy such an effective mechanism, throwing away, to a large degree, most of the emotional connection and customer engagement that they’d painstakingly created. Had they realized back in the prior decade, that the streaming world was going to be this intensely competitive, they might not have so blithely thrown away such effective engagement mechanisms.
When you think about the business challenges they faced during the transition from the first streamed content (Jan 2007) to their final shipped DVD (Sep 2023), it’s easy to understand Netflix’s uneasy path. When you realize that your primary business partner is the US Postal Service, and that they’re getting almost half of your gross revenue, something eventually needs to change. Their strategy has always been content distribution through streaming, and it was a brilliant move to lock in their first 20-25 million customers with DVDs as an interim tactic. Critical mass, network effect, first-mover advantage—all these trite business strategic buzzwords, and more, were very real to establishing dominance and profit in this dynamic sector.
Up until 2011, Netflix streaming was free—bundled with the main DVD product which ran $12-14 for most subscribers on limited-DVD plans. I can’t imagine Netflix launching a viable streaming business from scratch without first having moved through this critical trial stage atop a massive installed base of customers. That year, Netflix revealed its true goal of dominance in streaming by unbundling pricing into $8 for streaming and another $8 (or more) for DVDs, upsetting everyone except their mother. They aggressively tried distancing their brand from DVDs in 2011 (remember Qwikster? …don’t worry, no one does!), and again with a final disowning and brutal re-labeling as DVD.com in 2015. I avoided the streaming product for years, but inevitably, like nearly all the others, I climbed on board.
Amazingly, if I look back to my initial billings from 2004, I was paying $19.99/month for unlimited DVDs. Same $20 price point they’ve punched at with this week’s increase. Today, the average subscriber spends just under 2 hours per day watching Netflix. That’s almost double the nearly 4 DVDs/week the average customer consumed in the DVD heyday.
I miss the red envelopes, and I don’t have anywhere near the loyal engagement that I used to have, but in terms of hours on Netflix, I’m still at least where I was back then. Systems change; behaviors change; we adapt. I miss the Queue, in ways that are deeply ingrained and probably subconscious, but I’ve gotten over it, and struggle as best I can to deal with the seemingly random and unwieldy streaming reality that we’ve been dealt. At $20 per month, the typical streamer is now paying about $1.35 to watch a movie, and doing so instantly, and on whatever device they please—even after the price has doubled over the past decade. Some will rage quit, some will downgrade, most will stay the course. Many more customers watch, for many more hours than back in “the good ol’ days”—I suppose that’s progress. Progress, at a price.
