I imagine just about any and every new website you visited this week had a story about Netflex’s pricing changes. For those who might have missed it, the company is scrapping it’s $9.99 plan for one DVD at a time and unlimited streaming of content over the Internet and replacing it with two plans: $7.99 for the DVD rental and $7.99 for the unlimited streaming. Customers that were paying $9.99 before will pay $15.98 for the same service. I am one such customer.

An Emotional Reaction

When I read about the change I immediately sent my wife an email about it – something that I rarely do. Judging by the response on the news over the last few days, it seems like I wasn’t the only one to react emotionally. I took a minute to think about it. The 6 dollars a month isn’t going break our budget. In fact, it’s probably not going to be particularly noticeable in our monthly expenses.

Something else must be rubbing me the wrong way. After analyzing it a bit, it’s the nearly 60% raise in costs with zero new benefits. (Some may argue that the online streaming will have new options, but that’s a little hard for the customer to quantify.) I think it’s probably universal that people always rebel against those kind of sudden price hikes without being thrown a bone. If Netflix had nickeled-and-dimed a dollar or two over a few years, I think they would have avoided the outrage. If Netflix announced that with the price increase, they’d allow people to keep 2 DVDs out at a time. In that case, I’d say, “It’s not good that they are putting a forced price increase out there, but at least I’m getting more value for the service.” It’s a little like the movies raising the price of their popcorn and then giving you another 8 ounces… you probably didn’t need one and a half pounds of popcorn… and might not eat it… but it’s comforting to get it. It would also be a win for the company because of the increased margins.

With this being the case, it seems that I have three options:

1. Just pay the $16 a month – Hey, this is what cable companies did for years and years. I’m already used to it. On the other hand, I’ve been on the lookout for ways to reduce my cable bill, so it doesn’t bode well for Netflix’s future in our household
2. Go to the one DVD at a time option at $7.99 – I’d have to check with the wife, because she occasionally streams movies, but I’m guessing that most months we don’t stream more than one. That makes the $7.99 a high price to pay for the option. The movies available for streaming never seem to be the latest releases or the hits. They are probably ones we could have set our DVR to tape if we had the forethought.
3. Drop Netflix all together – This will probably cost me more in hotel fees when my wife finds out. It’s not a realistic financial option.

I’m thinking the right option is the 2nd one. It gives 80% of what we use Netflix for at a discount to what we are currently paying. However, before fully going down that road, it’s worth asking the question, “Am I getting good value for my movie renting dollar with Netflix?” To answer that, I found this little Netflix calculator. You simply cut and paste your Netflix rental history into it as well as what your plan is, and spits out some interesting statistics. Here’s what it has for me:

Your results:

You’ve rented 103 DVDs over 33 months from October 27, 2008 to July 06, 2011.
Your plan costs $8.99/month so you’ve paid $296.67 total.
Your average price per rental was approximately $2.88 each.
Average rental costs elsewhere are $3.75 each (not including late fees).
You’ve saved approximately $89.58 over that time period or $2.71 per month.

Here’s some more about your renting habits:

You kept each rental for around 8 days on average.
The longest you kept a single DVD was 40 days.
You rented about 3 DVDs each month.
You’re not taking full advantage of your current plan. You could be renting 6 DVDs each month.

It looks like we aren’t getting the value that I hoped for out of Netflix. The price of $2.88 a movie is pretty high especially considering the $1 Redbox option. I take a little fault with the last line about taking full advantage and getting 6 DVDs a month. I think you’d have to watch even movie the same day and get it back in the mail for that to happen. So while it may be possible, it’s hardly practical. (Side Note: I think that 40 day Netflix thing was an extended vacation to Australia. At the time, I looked into pausing the account, but with the dates it wouldn’t have really worked out.)

If we go with the $16 plan and don’t want any streaming movies for the month, we’ll end up paying $5.12 per movie – a price that would have kept Blockbuster in business. Of course, it would be silly to pay for the $16 plan if you are only going to use the one-DVD at a time option that could be $8. For me it becomes an issue of, “How much do you pay for having the option of doing something (in this case watching streaming movies), even if you aren’t likely to doing it?” I’m not sure I have a definitive answer for that.

What are your thoughts on the Netflix pricing change? Are you going to keep both streaming and renting by mail? Are you picking one over the other?