Thanks to Hollywood, Netflix Is Pricing Itself Out of a Business

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<h1>Thanks to Hollywood, Netflix Is Pricing Itself Out of a Business

By Erik Sherman | July 12, 2011

Want to watch streaming video and still get an occasional DVD? If you use Netflix (NFLX), prepare to see your bill jump by 60 percent. The company just dropped that bomb today, couching it in as a move to “better reflect the costs of each” and “give our members a choice” of streaming only, DVD only, or both.

OK, so the combination streaming and one-DVD-at-a-time plan technically was a way to get both. Or you could pay just for streaming or just for DVDs. But this isn’t about you. It’s about the studios and a big problem about to drop on Netflix’s head. The Hollywood studios who own the video rights want more money. A lot more money.

That means Netflix has to pull in a lot more to pay higher licensing fees. The only question is, will the company alienate its customers and push them into the arms of such rivals as Hulu and Apple (AAPL)?

Studios like money — lots of it

Michael Pachter, an analyst at Wedbush Securities, thinks that as soon as Netflix’s streaming contracts are up in the next few years, studios will renegotiate for a lot more money. How much more? Maybe ten times as much as they get today. And the future for Netflix is streaming, which explains why the FAQ section describes Netflix as a service for online video with the DVD service described as an add-on. (Wait, what happened to a choice of DVD or streaming?)

Pachter’s estimate may or may not be accurat. But if you’ve spent any time watching how the studios negotiate with producers, actors, writers, theaters, online video companies or anyone else, you can see a pattern of hardball negotiation. When they have the upper hand, they push to get more.

Their way or the super information highway

From their view, the studios have nothing to lose. They like traditional programming carriers that pay a lot more for video. They’d be just as happy to see all the streaming disappear and everyone move back to a Golden Time when consumers paid plenty for bundles of cable channels because they didn’t have any alternatives. They have no love for streaming, unbundled video, or the inevitable breakdown of traditional television and movie distribution.

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