Netflix Price Increase, Why it May Not Be so Bad?

Netflix has been getting some serious flack because of the price increase that they announced recently.  I am not particularly happy about the Netflix's decision to increase their prices, but I am also not outraged like some seem to be.  I can understand why some people are so upset but the fact of the matter is this, Netflix has increasing costs and increasing licensing fees (in particular).

While some may disagree with me, I tend to hope that these increased prices may lead to better content availability via streaming.  By separating DVD and Streaming subscriptions the costs of both should be better financed.   With DVD shipments costing around $600 million a year, it makes some sense to charge more than the current $2.00 subscription premium for DVD rentals.  If you use the $600 million figure for the amount it costs Netflix to ship DVDs and if you use 23.6 million figure for the amount of subscribers Netflix currently has, the total costs to ship DVD per month, per subscriber is roughly $2.12.  If you figure that Netflix typically charges about $2.00 per month for DVD rentals, per subscriber, Netflix is essentially breaking even on DVD shipments (If the current subscription rate is covering streaming costs and making a profit on streaming).

To give you an idea of how Netflix compares see the below alternatives:

Redbox costs $1.00 + tax per night

Blockbuster starts at $11.99/month, which gives you 1 disc out at a time.  This includes both games and movies/TV shows. This does not offer a streaming option, this is for discs ONLY.

iTunes is a per use charge, and the cost of TV shows and Movies vary.  You can see prices typically range from 99 cents up to $3.99, with new releases usually $3.99.

For Netflix to not only to break even on DVD rentals, but to turn a profit on DVD rentals it must raise it rates.  Subscribers are continually asking for newer and better streaming content and in order to fill these demands Netflix must pay more money to obtain newer and better streaming content.  In order for Netflix to pay for the things that their subscribers are asking for they must raise there streaming rates, and by seperating the DVD rental and Streaming rates Netflix will be making more on DVD rentals and getting more for streaming subscriptions.

In the end, I hope the Netflix can get some better streaming content because I prefer to not deal with DVDs.  I like the ease and convience of streaming content to my TV, and by changing their subscription rate structure I hope (and think) they can continue to improve streaming.

What do you think?