On Tuesday, as I'm sure you've heard, Netflix announced that they were splitting their Streaming and DVD-By-Mail services. With each costing $7.99/month, this essentially amounts to a 60% rate hike for one of their most popular services, it's the subscription I and many people I know use. Needless to say, this created quite a stir on the internet, many people saying they will either cancel their DVD-By-Mail plans or even tossing Netflix out the window all together. This is the sort of reactionary craziness that you only find on the internet.
Before Netflix, there was cable. Remember cable? No, because you have Netflix now and the only reason to turn on the TV is for news (which you get on the internet) and sports (which you can get on your Xbox 360 or computer). Cable started as an ad-free subscription that offered little more than rerun network shows, specialty channels and softcore pornography. Then ads started sneaking in. Advertisers didn't want to be associated with smut, and so the porn went away. Advertiser dollars kept rolling in, and cable channels started producing higher and higher quality original programming, and those specialty channels were able to raise production values and gain more viewers. Now, ESPN is one of the richest businesses on television and cable channels are winning more and more Emmys every year.
This brings us to the Netflix era. Netflix started way back in 1998 with a pay-per-rental model, like those seen in regular rental stores. Not long after, it introduced the now ubiquitous subscription plan and cancelled the original pay scheme. This is what made Netflix really take off, and that's what makes the story really begin. Before long, Netflix was looking to expand.
They opened up a distrobution house called Red Envelope Entertainment, named after the signiature red envelopes they mail their DVDs in. They released over 100 movies, including the acclaimed documentaries This Film Is Not Yet Rated and Born Into Brothels, the less acclaimed, though controversial doc, Super High Me and foreign films like 4 Months, 3 Weeks, 2 Days. These films, due to their subject matter or lack of commercial viability, might otherwise have never seen the light of day. Red Envelope Entertainment was closed down in 2008 due to pressure from other distributors. It was their first foray into adding to the world of entertainment, something they've been revisiting lately.
When Netflix started their "Watch Instantly" program, the company became a revolution. People could now watch anything Netflix had licensed within seconds on their computers (later moving to just about every internet connection device with a video-out port). They signed deals with Starz to bring current programming to the system, and Paramount to get their films shortly after their DVD release. Every few weeks, a story is posted about Netflix's next big signing. Now, some estimates have Watch Instantly streaming up to 30% of the nation's bandwitdth at peak hours.
Bandwidth, as anyone with AT&T U-Verse, Comcast and a growing number of ISPs with monthly data caps can tell you, comes at a cost. Netflix has made it easier and easier to use more and more of their bandwidth, though. When the streaming plan started, you could watch 1 hour of streaming video for every dollar spent on the DVD plan. A $15/month plan meant you could watch 15 hours of content per month. Netflix has dropped that. Up until recently, you had to get DVDs in the mail in order to get access to the Watch Instantly archives. Netflix dropped that too with the addition of the $7.99 streaming only plan. All this has led to, as of April 2011, a staggering 23.6 million subscribers in the US and Canada alone. That equals a lot of scratch.
But bandwidth aside, where does all the money go? Well, estimates say the company spends close to $1 billion in shipping out their DVDs. The previous postage rate hike cost Netflix $50 million per year, but that's not what makes headlines. Netflix is now going through a transformation, turning into a real network, just like all those cable channels from years ago. They signed a big money deal for two 13 episode seasons of House Of Cards, a show from David Fincher and Kevin Spacey, outbidding established networks like AMC and HBO. This would be the first time they've funded an original production, and it's clear that they're betting quite a bit on it. They also recently signed a deal for exclusive rights to past episodes of acclaimed AMC show Mad Men for $2 million per episode. No one complains when Netflix spends money, but everyone complains when they ask for some more.
In short, rate hikes are an inevitable part of the business. Netflix has to pay for pay for a lot of things, and with increases like this, it means they have more money to spend on more things. It's clear Netflix isn't shy about spending money to provide content to its users. Whether it's signing new deals or finally putting captions on the content that's already available, the money probably won't be going towards the depths I gleefully trawl.
I've been a subscriber for years and will continue to be a subscriber with the same plan, despite the increased rate. I've never received a bad disc and I've never gotten those discs even a day late. Redbox, those kiosks at the checkouts of grocery stores and the like may be the way to go for some, but if you want a back catalogue or TV shows, Netflix remains the best option out there.
Monday: The Internet and Entitlement.
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