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Ernie's House of Whoopass! July 13, 2011
July 13, 2011

Don't Worry Netflix, I Still Love You.

Netflix's current pricing plan: The $9.99 I pay each month which buys me unlimited streaming of their movies, plus as many DVDs as I would like each month, but only 1 DVD out at a time. They offer 2-3-4-etc DVDs at a time plans, but eh, most of the stuff on DVD that I want to watch is pretty eclectic and only comes along every so often, so so why bother.

Netflix's new pricing plan: it will cost $7.99 for unlimited streaming, plus an additional $7.99 for the 1-DVD at a time plan.

Although existing customers are grandfather in until September 1st, obviously my first reaction to this gigantic rate hike was to have an aneurysm and vomit all over the place. But being the empathetic soul that I am, tried to look at this from Netflix's point of view. What prompted such a drastic shift in their priving scheme? Well, it's a two folded problem. First, let's look at the new challenges that now face their streaming side of the house.

When netflix first started streaming, the likes of Hollywood folks such as Stephen Spielberg, Michael Bay, and James Cameron weren't entirely sure if streaming movies was just a passing fad or not. So when Netflix approached them asking to license their media, eh, it was more of an experimental gestures on Hollywood's behalf. In 2010, the cost for Netflix to license all of their streaming movies was around $180 million dollars in fees paid out to Your Favorite Hollywood Entity. But with DVD/Blu-Ray sales down, now Hollywood sees that streaming media is indeed the way of the future and with more streaming players in the market (Hulu, Amazon, Apple, Google), rights to streaming media are becoming a rather lucrative commodity. What cost Netflix $180 million in 2010, is expected to cost them $1.98 BILLION in 2012. For those of you keeping score, that's an ELEVEN fold increase in licensing costs.

Now let's look at the mail-order DVD rental side of the house -- which I just want to go on record as predicting to die off within five years. Anyway, when Netflix first opened their doors back in 1999, the cost of mailing out one movie was $0.33 each way. Now twelve years later and it's $0.44, that's a 33% increase in costs. So every time Netflix mails me a movie and I sent back to them in their pre-paid envelopes, it costs them $0.88. Where I live, the turnaround time for a movie is two days after I order it -- so if I order it on Monday afternoon, it's in my mailbox on Wednesday afternoon. Let's say I watch it that night, and mail it back on Thursday -- if I get it into a mailbox before 10am, Netflix will receive it on Friday and mail me out another movie that afternoon. Lather, rinse, repeat. Turn around time for a movie: 5 days. Number of DVDs I can get mailed out in a 30 day period: 6, although 7 isn't unrealistic if I'm quick about getting the movies back out the door. But let's use 6 DVDs per month x $0.88 per DVD (not including their purchase price) = $5.28 in postage costs per month. Subtract that $5.28 from the $9.99 I'm paying now and Netflix gets paid $4.71 to let me stream their entire movie collection.

In 2010 it costs Netflix about $0.05 to stream a high definition movie, and predictions are their licensing fees for streaming media are going to increase to eleven times what they are now, it will soon cost them $0.55 to stream a movie to your living room. Let's say you only stream 3 movies per week -- that's 12 movies per month -- equals $5.28 in postage fees + $6.60 in licensing fees = $11.88 Netflix needs to take in, just to break even. Not pay the employees, or keep the lights on, or make any profit. That's $11.88 just to break even. So if they continued their $9.99 plan, they would be losing $1.89 per month, per customer... all ten million of them. Now how long do you think Netflix would be in business if they lost almost $19 million dollars each month?

So here's how the profit from their pricing plans today, versus what they're going to and why they have to do it:

subscription type streaming cost for 12 movies postage cost for 6 movies monthly subscription fee profit per subscriber
old all inclusive 12 x $0.05 = $0.60 6 x $0.88 = $5.28 $9.99 $4.11
if they continued old all inclusive 12 x $0.55 = $6.60 6 x $0.88 = $5.28 $9.99 $-1.89 LOSS
new streaming only 12 x $0.55 = $6.60 $0.00 $7.99 $1.39
new DVD only $0.00 6 x $0.88 = $5.28 $7.99 $2.71
both streaming and DVD 12 x $0.55 = $6.60 6 x $0.88 = $5.28 $15.98 $4.10

So if you were to sign up for both packages and fork over $15.98 to Netflix instead of the $9.99 you are now, they will actually making the same profit each month ($4.11 vs $4.10) that they are today. Netflix is not not jacking up prices to cornhole their subscribers, they're simply passing their cornholing on to us. If you want to blame someone for the price increase, blame Hollywood (receiving 82% of your subscription fee) and their $100 million dollar movie budgets and actors that command $25 million per film, or the postal service (receiving 66% of your subscription fee). But isn't Netflix's fault.

On that note, did you know that Starship Troopers was an anti-war film? Think about it. A race from a distant, desert land, who out of nowhere strikes a civilian target in a way we didn't think was possible, leading to heavy-handed patriotic propaganda, and a headlong rush into a war with a poorly thought-out strategy that results in a quagmire. [shower scene] You don't have to agree with the message to get that it's clearly a satirical send-up of the War on Terror. [Dina Meyer naked] If anything, it's too on-the-nose. What's that, you say? The movie was made in 1997, four years before 9/11? Hmmm. That is a problem. [I say kill em all] But look how they line up. Pretty fucked up, eh?

And for those of you who don't follow, the 2011 World Series of Poker Main Event is currently taking place at the Rio All Suite Hotel and Casino in Las Vegas, Nevada. Many of you may not enjoy watching poker, whether it is live or televised. However, I can almost guarantee that you all love watching gorgeous women, no matter what they are doing. As a result, I figured it would be a good idea to give you a glimpse of what is going on at this year's Main Event, but rather than focusing on the actual poker, we are going to turn our attention towards the lovely ladies that you can find both at the tables and along the railings on the casino floor at the WSOP. Remember how Jennifer Tilley used to have the run of the place? Yeah, not anymore. And hands off numbers 4, 10 and 33, them bitches be mine.

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