Paying for something “free”

Posted by on 20 September 2011 0:09 Leave a comment (6) Go to comments

Netflix got a lot of backlash when they raised prices last month by separating subscriptions for their streaming and DVD-by-mail services. Today they announced that the DVD service is being spun off as a separate business unit with a new name of dubious merit: Qwikster. The negative response to these actions emphasizes a critical point of consumer psychology in the Internet era, which Megan McArdle puts well: If people have come to expect something for free, “you will have a devilishly hard time getting them to pay for it.” Netflix has already suffered losses from trying to charge for something people thought was free, and breaking off the DVD service only compounds that problem. A company like Redbox that appears to offer more value per dollar stands to gain the customers Netflix is losing.

CS 404
  • Scot

    It’s funny to me to see backlash of this kind.  Honestly, when my wife and I got netflix, we primarily wanted the streaming and considered the dvd option as ‘only 2 dollars more.’  So we saw the increase in price as paying more for dvds, not as finally paying for streaming.

  • http://globalconstant.scnay.com/ Steve Nay

    That’s how I see it too. I don’t have Netflix (yet), but if I did, the streaming would probably be the most important feature for me.

    You can look at it either way: we’re now paying extra for streaming or we’re now paying extra for DVDs. In either case, it was a smart move for Netflix to position themselves for the future.

  • Javid

    I honestly think Netflix is trying to kill the DVD service. Perhaps the DVD portion of it’s services are losing money for the company.  By splitting the service, they can easily starve it until it just disappears entirely. This way, they can convince customers that there are two separate services, so when Qwikster dies, it doesn’t look as bad on the company.

  • http://globalconstant.scnay.com/ Steve Nay

    They could do any number of things at this point–let it die, sell it, use it to acquire other companies. It was a good idea; leaves them a lot of options.

  • Bob

    I think one of their biggest faults is that they made such a drastic change. If they had raised the price by a few dollars rather than doubling it they may not be hurting as bad as they are.

  • Tyler Southwick

    My wife and I did the same thing – we only streamed stuff, never got DVDs. The problem now is that their streaming options are suffering. Their “new” movies came out in the 80s… some of them are good, but they don’t have a lot of the newer stuff.