As competition from online streaming services, traditional TV networks and premium services like HBO heats up, will Netflix have to start charging its subscribers more to afford the content they want to see?
It's a question some analysts and pundits are asking after Netflix announced a deal for the exclusive rights to Disney films starting in 2016, an acquisition that is rumored to cost between $300 million and $350 million.
It has caused a significant amount of unrest amongst analysts who worry that the costs of the deal outweigh the benefits. Speaking to the Wall Street Journal's Market Watch blog, Albert Fried & Co. analyst Richard Tullo raised concerns about the deal, citing Netflix's “fixed subscriber revenue with little ability to increase rates, compounded by an expanding cost structure.”
UPDATE: Netflix has pushed back strongly against talk of a potential increase in its monthly fee. "We are not contemplating raising the $8-a-month subscription fee for unlimited online viewing," said Netflix Chief Content Officer Ted Sarandos during an interview with famed film producer Harvey Weinstein, according to Reuters.
That central quandary left Bloomberg News asking what is likely an unappetizing question for current subscribers: Will Netflix have to hike its prices to pay off the Disney deal, in addition to its mountain of other expenses? Cliff Edwards of Bloomberg News sat down with Bloomberg TV correspondent Jon Erlichman to discuss the company's options.
Erlichman said the company will probably have to raise its prices if it does not see a significant jump in new subscribers. However, he thought it unlikely that Netflix would introduce a tiered pricing model, under which users might pay different amounts depending on the types or amount of content they want to consume.
"At the end of the day, it really depends on how many subscribers they have by the tim they reach the beginning of this deal in 2016. If they don't have enough, we're going to see high prices," said Erlichman.
The company last year raised the price on its combination DVD-and-streaming subscription, hiking the monthly rate from $10 to $16. It also began offering two new plans, each $8 a month, one for DVD-by-mail and one for streaming only. The backlash from this price hike was immediate: Customers dropped the service in larger-than-expected droves and stock tanked.
During the financial quarter that ended on September 30, 2012, Netflix added 1.2 million new streaming subscribers in the U.S., scraping the bottom of the company's projected growth target for the quarter. By year's end, the company expects total domestic subscriber additions to have been between 4.7 million to 5.4 million, down from earlier estimates of 7 million.
The AP itemizes Netflix's staggering stack of bills, pre-Disney: "Even before signing the Disney deal, Netflix owed $5 billion in Internet video licensing fees during the next five years, including $4.5 billion due before the end of 2015. Netflix's annual revenue this year is expected to total about $3.6 billion."
It is far from certain, of course, that Netflix will actually raise its prices; at this point, it is little more than Wall Street analyst speculation. But as the popular movies and television shows that viewers expect from Netflix become more expensive to license, we wouldn't be shocked if Netflix's subscription prices creep upwards at some point over the next few years.
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Don't Watch A Movie Without Rating It
When you finish a show or movie on Netflix, the site requests that you give it between one and five stars, based on how much you enjoyed it. You're not being asked to rate that content for kicks, or so that you can later reminisce about how much you liked a certain film: Rather, Netflix has spent many years improving its recommendation engine, even offering a $1 million prize for anyone who could up the accuracy of Netflix recommendations by 10 percent. At this point, the Netflix recommendation engine is pretty darn accurate -- it takes into account your own ratings as well as the viewing habits of those similar to you. Basically, the more films you rate, the more you're likely to enjoy a Netflix recommendation. If you constantly find yourself frustrated that there's nothing on Netflix, take a half hour or so and knock out a few hundred ratings on the "Taste Profile" section of the site, and make sure you've filled in your genre preferences, too. Finally, if Netflix persists in recommending a title that you're just never going to watch -- for me, that would be "The Lincoln Lawyer" -- remember that you can click on the "Not Interested" button on any film's homepage and it will disappear from your recommendations page while simultaneously smartening up your future recs. (For an in-depth look at the Netflix recommendation engine, and how it works, I recommend this post on Netflix's official blog.)
Don't Fly Blind
Leaning on Netflix's recommendations alone ensures that you'll discover some good flicks; if you're really committed to shaking all the leaves from the tree, however, you're going to need some backup artillery. There are several excellent extensions that you can add to your favorite browser to augment your Netflix experience and increase your chances of sniffing out a great new film. An extension like "Rotten Netflix," for example, inserts little Rotten Tomatoes scores beneath every movie poster on the website, so that you can instantly know how a movie fared with critics. Similarly, the "IMFlixDB" extension displays a movie's IMDB ranking on a white bar above the Netflix homepage and gives you quick access to that film's information page. The ever-prodigious members at Reddit use the wisdom of crowds, meanwhile, to constantly vote up streaming movies that you might otherwise miss. It's a super-active community with consistently high-quality recommendations: Check it out here.
Don't Let A Film Disappear
Another Netflix specialty website is InstantWatcher, a clean website that allows for easier movie search than you'll find on the Netflix homepage. And while many outlets toast InstantWatcher for its quick and robust search functionality, we like it because it also lists the notable films that will disappear from Netflix Instant soon. There's even a Twitter feed that does nothing but tweet out the names of soon-to-be-expired Netflix movies. There is no worse feeling, in the whole entire world, than sitting down to watch a movie you've had in your Netflix queue only to discover that the movie has disappeared. Don't let it happen to you again.
Don't Be Afraid To Quit
One of the really nice things about a Netflix subscription is that you pay month-by-month; it's not like a cell phone contract where you're locked in for two years and you have to pay an exorbitant fee if you want to get out early or cancel service. With Netflix, you can quit for one month and come back the next: Netflix will save your queue and ratings for up to two years so that if you do come back, you don't really have to start over. So, if you're taking a vacation, or studying for the LSATs, or going to prison, just cancel your account and save yourself the $8 for as long as you need. Or, if you are one of our Olympian Netflix bashers from above, go ahead and try life without the 'Flix for a month or two and see how you do. Your account information will be waiting for you when (or if) you return; and, hey, if you do, now you have plenty of new ways to find the excellent movies and TV shows you might have missed while in exile.