Netflix changes reflect evolving market

Users see move phasing out DVDs

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College student Lydia Statz was one of more than 23 million Netflix users who received a jolt when the DVD rental and online streaming company announced major price increases last week.

“They had such a good model going,” said Miss Statz, adding that college students used Netflix because it was cheaper than purchasing cable. “Why ruin it?”

The answer, according to numerous angry customers, is so people would drop the DVD option and Netflix could save money on postage and the famous red envelopes. Instead of unlimited DVDs and unlimited online streaming for $9.99 a month, new customers now must pay $7.99 a month separately for each service. Existing customers must do the same, starting Sept. 1.

Miss Statz is not the only unhappy customer — according to a Mashable.com poll, 38 percent of users claim they will quit using Netflix. Almost 80,000 comments appeared on the company’s Facebook page, ranging from the civil (“Why increase prices? It seems unnecessary”) to the irate (“You should be more considerate of the people who made you so filthy rich!”).

“I don’t think I’ll cancel my subscription totally, but I’ll probably stop getting the DVDs. I use the streaming option more often anyway,” said Miss Statz, a student from Fort Atkinson, Wis.

And that’s exactly the reaction Netflix seeks.

Just as Apple’s Steve Jobs drove a stake through the heart of CD players and the idea of a floppy disk has become humorous to anyone under the age of 20, Netflix and other online streaming sites like Hulu are changing up the entertainment industry by promoting online streaming over DVDs.

Netflix’s website does not even mention through-the-mail rentals on its homepage — it instead advertises movies “instantly over the Internet!” and doesn’t tell readers about its delivery service until they have clicked on “How it Works.”

The DVD industry has been slipping. In the first three months of 2011, as physical sales of DVDs dropped 19 percent and physical rentals dropped 36 percent — but spending on streaming and subscriptions to websites like Netflix rose 33 percent. In March, Los Angeles-based industry research firm IBISWorld included DVD rentals among the top 10 “Industries on Life Support.”

“When consumers today want to watch a movie, they go to their TV’s On Demand or the Internet. It’s an immediate viewing, and there’s no late fees,” ISBWorld analyst Agata Kaczanowka said.

She also said that although Netflix officially raised the price because studios raised their fees, its online streaming is contributing to the downfall of DVDs.

“The ability to watch it on any connected device really changes the consumption model of movies and television,” added Michael Olson, a digital media expert at Piper Jaffray financial services. “Now, you can watch it not only on your TV but your iPad or mobile phone or PC or any other device.”

Andrea Shaw, a student from Madison, Wis., said she prefers streaming’s convenience.

“I will continue to use Netflix’s DVD service, but their online streaming and websites like [HBO streaming site] HBOGO are making the DVD rentals seem unnecessary,” Miss Shaw said.

But although DVD sales may be disappearing, Mr. Olson said discs likely won’t disappear from shelves soon. “It’s safe to say that DVDs will disappear at some point. But the death of the DVD is not going to happen overnight. The DVD has a kind of continued life among certain groups of consumers,” he said.

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