Is Netflix Doomed after it’s 60% price hike in the US, not likely says research firm TDG.
While many customers are upset and very vocal with the recent price hike announcement all the hype around canceling subscriptions is “More Myth than Method” according to TDG. Research indicates that most subscribers will most likely “Tweak their Service” rather than cancel their subscriptions completely.
TDG’s research gauging Consumer Reactions indicates that about 70 percent of Netflix subscribers are very unhappy with the higher fees however due to lack of viable alternatives most Netflix customers are likely to stay. The report shows that 44 percent of US Netflix customers are likely to cancel their DVD-by-mail service and opt for only streaming while 34 percent of US subscribers are more likely to cancel streaming and continue receiving physical DVD’s in the mail.
Investor’s Daily reports that 12-15 percent of Netflix dual-service subscribers will cancel their service altogether in the next six months due to the price increase, leaving Netflix with a net loss of potentially 2.5 million subscribers.
While on the surface losing 2.5 million subscribers seems like a big deal, and it is, however by separating the physical and streaming media divisions and pricing Netflix will benefit from some tax implications which tax physical media higher in some states than streaming media. By separating the two forms of media into two distinct products Netflix will realize some tax gains which nobody seems to be talking about buy clearly was at the forefront of Netflix pricing strategy.
According to several marketing studies including TDG most consumers favor Streaming Video over physical media (just ask the now defunct Blockbuster). The cost to stream media is far lower than delivery of physical media so this price increase by Netflix is also a strategy to move their physical media customer base toward their more profitable ‘Streaming Media’ division.
So what other choices do disgruntled Netflix subscribers have? Well US customers have several, Amazon, Apple TV, Hulu Plus, Vudu, Blockbuster On Demand and the Cable Companies are some of the alternatives to Netflix in the US, unfortunately in Canada we only have Netflix, Apple TV and the Cable and Satellite Companies, Hulu, Amazon and Vudu do not offer their services up in Canada at this time.
So what does this Netflix US mean to Canadian Netflix subscribers – plenty.
Streaming Only: Netflix pricing strategy south of the border is partially an attempt to coerce DVD customers to opt out of the more costly physical media service and move to the more profitable streaming only service. In Canada Netflix provides only streaming so that should be good news right? Well Yes and No.
Netflix traffic accounts for 40-50 percent of all internet traffic in North American during the peak prime time hours of 4pm – 11pm. This extra traffic has upset Canadian Internet Service Providers which resulted in internet usage Bandwidth Caps and Tiered Pricing. In addition the cable companies are petitioning the CRTC to re-regulate Netflix Canada and classify them as a Broadcaster which would then increase their fees to operate in Canada and place them on even footing with the Cable, Telephone and Satellite companies. Netflix is fighting is move and so far the CRTC has not rendered a ruling. One of the options up for grabs is to impose an Internet Usage Levy or Toll on Netflix which would see their costs to provide service in Canada go up by about $2 bucks a month. The negotiations with the CRTC are still ongoing but there is no doubt that Netflix is keeping a close eye on consumer reaction and subscriber rates in the US to gauge what type of price increase would be suitable in Canada should their costs to operate in Canada continue to climb.
Speaking of costs to operate in Canada. The CRTC and Canadian copyright and broadcasting laws and policies are the main reason other streaming companies such as Amazon, Hulu and Vudu are not operating in Canada at this time. Our population base is too small and our regulatory requirements to stringent to make operating in Canada profitable for most streaming media services. Too Bad a little competition for Netflix in Canada would be a good thing.