Wednesday, July 13, 2011

Will Netflix Hurt Itself and Slow Down Cord Cutting?

Have you mailed a letter lately? Are you emailing birthday cards instead of mailing them? Do you think $0.44 for a stamp seems like a crime? Well Netflix seems to want to move it's customer base away from mailings as well and to a streaming only model. That was the strategic decision a couple years ago when a streaming strategy was deployed and a change in the pricing model is only a next step in pushing consumers to wholly embrace streaming only. Why else insist on raising monthly membership fees by 60%.

"Netflix shared the news in a blog yesterday, explaining, 'We are separating unlimited DVDs by mail and unlimited streaming into separate plans to better reflect the costs of each.'" In addition, they are separating out the management teams into two silos, ultimately to grow one business while managing the maturity and downfall of the other.

And while there is initial outrage, the younger consumer has been more focused on streaming only anyway. It is their older customer who has been still using mailed DVDs. The Netflix move is to gear itself more toward that next generation consumer. But Netflix must also bolster its library of streamed products to remain competitive. Complaints abound that newer films aren't available for streaming and the library of product still pales against cables' on demand library.

But it is that $8 streaming price point, far cheaper than cable, that still will factor into cable cord cutting. Netflix will grow its library and compete effectively against cable. Customers will complain about the increases; some will downgrade service, others will still pay it. Netflix has a future strategy and it is clear that this move is short term pain for their long term gain.