posted 07-12-2011 07:09 PM                    

quote: CNN Article

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Netflix is launching new, unlimited DVD-only plans in the U.S. -- but as a part of that move, it's scrapping unlimited plans that include both physical DVDs and online streaming.

Subscription movie rental service Netflix (NFLX) said Tuesday that the changes are meant to "better reflect the costs" of each option. The changes cut prices slightly for customers who only want DVDs, but streaming video will now cost extra. Customers who want both options will essentially have to pay for two plans, raising their overall bill.

Netflix's unlimited streaming-only plan will remain at $7.99 a month, while its "1 DVD at a time" plan will also cost $7.99. That means customers who want both streaming and DVDs will have to shell out at least $15.98 a month.

That's a big jump from the $9.99 a month customers currently pay for a plan that offers unlimited streaming plus 1 DVD at a time.
The changes will be effective immediately for new customers and will take effect September 1 for existing members, Netflix said.

The move comes as Netflix continues to shift its focus toward online streaming video -- an option that, while popular, costs Netflix loads of cash as studios start commanding higher prices for their content.

Netflix's announcement sparked an immediate and loud backlash from customers. By Tuesday afternoon, more than 3,000 comments filled the Netflix blog post announcing the changes -- most overwhelmingly negative. Hundreds of commenters said they would cancel their plan, some in favor of rival streaming offerings from Hulu and Amazon (AMZN, Fortune 500).

Others planned to stock up on DVDs from rental kiosk Redbox (owned by Coinstar (CSTR)), which said earlier this year that it is working on its own streaming service to take on Netflix.

"The only way that this is terrific for the customer is if you plan to offer your entire collection available for streaming," one respondent wrote on Netflix's blog. "Otherwise this is just yet another way to choke more change out of your customers."

"You've decided to raise customer rates during a period of economic downturn, when people are struggling to pay for basic necessities," another customer wrote. "You're forcing me to pay more for products and services I've paid for loyally for quite a while now. You're really, REALLY making me reconsider this business relationship."

Netflix first introduced streaming plans in 2007. Since then, the service's membership has climbed from 6 million to 23 million in the U.S.

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posted 08-06-2011 11:09 PM                    

quote:

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Looming threat for Netflix: Charging consumers for data use

By Cecilia Kang, Published: July 26

Netflix this week declared that the future of video entertainment is online, saying the DVD market has “peaked.”

But as the company and its rivals press further into streaming their videos over the Web, they face a game-changing threat: Internet service providers who are moving to charge consumers for every bit of data they consume.

AT&T and Verizon have already installed such plans on cellphones. Comcast has started to do the same for the Internet service it provides over cable lines.

In the face of such data caps, consumers could think twice before watching a streaming video over their smartphone or computer, worried that they would blow past data caps and trigger penalty fees on their monthly bills, industry analysts said.

“Users hate it, and the burden of watching the bandwidth meter deters them from trying innovative new services,” said Kevin Werback of the Wharton School of the University of Pennsylvania.

Internet service providers say the new billing approach is needed because video watchers are hogging their networks. In New York, San Francisco and other cities smartphone users have complained that they cannot get online during peak hours because networks are congested.

The problem is only expected to worsen as the popularity of online videos outpaces the ability of Internet service providers to build more-robust networks. Sandvine, a broadband equipment provider and analytics firm, estimates that 55 to 60 percent of all broadband Internet traffic will be made up of videos by the end of the year, compared with 30 percent at the end of 2009.

“Streaming online is on fire, but bandwidth is not infinite,” said Dave Caputo, chief executive of Sandvine.

“Service providers have to buy equipment, put in lines to make bandwidth bigger, which has to be factored into business models,” he added.

Charging consumers by the amount of data they use would enable Internet service providers to make more money and reinvest in expanding capacity on their networks, these companies say.

But the new billing method could have broad consequences for companies that are reorienting themselves around video streaming.

Netflix, one of the Internet’s biggest bandwidth hogs, could be among the companies hardest hit.

In its second-quarter conference call Monday evening, chief executive Reed Hastings said 75 percent of all new customers are getting only streaming video. That’s what prompted its unpopular decision to raise prices for customers who want to add a DVD subscription to their streaming service.

“We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we’re working hard to further improve the quality and range of our streaming content,” Netflix said in a letter to its investors.

In the past, Netflix has told investors and U.S. regulators that they fear usage-based bills could hurt their business. In Canada, the Silicon Valley firm has even degraded the quality of its streaming videos so users don’t go over their broadband caps.

Some policy experts say it is not as costly to manage traffic as Internet service providers claim.

“It’s a black box to how companies are investing in their networks and how they come up with prices for data caps,” said Harold Feld, a policy expert at the public-interest group Public Knowledge.

For now, the data caps have not been unreasonable for most families, some consumer groups say. It would take more than an hour of streaming high-definition video every day to blow past Comcast’s 250 gigabytes cap, for instance.

But wireless data caps on smartphones are easier to exceed, analysts say. And Internet users are increasingly using their mobile devices more than their home computers to go online.

Nearly two-thirds of all Web traffic is generated by computers, but that is expected to fall to 46 percent by 2015, according to Cisco, the Internet network equipment maker. By 2015, the number of mobile Internet users will jump 56-fold to nearly 800 million, Cisco said.

Data caps will push people “to curb their behavior on the Internet,” said Parul Desai, policy counsel at Consumers Union. “The problem is that they don’t have an alternative with monopoly and duopoly Internet service providers who oftentimes are trying to sell their own video products.”

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