I have been advocating that one should consider "cutting the cable." When you have 100 channels on cable TV, and there is "nothing" on, the conclusion I reach is that there is a lot of bad cable TV. Because of this I have been a big Netflix user. Netflix is a DVD rental-by-mail company with added streaming. It is becoming a movie streaming company with a DVD rental company on the side. I have heard it estimated that 40% of all internet activity is related to Netflix streaming.
Netflix has recently raised its prices for the package I have by 60%. Not long after the price increase we received notification that they planned to split Netflix in two. This will result in a lot more work for me as a consumer as I will have to maintain two different lists of movies I want to watch-very annoying. After writing this Netflick changed their mind and will not split the company in two.
At first I just assumed that Netflix was being stupid. Now I realize that while this is possible, it seems more likely that something we can not see is going on. Here is one commentator's suggestion:
So here is what I think happened with Netflix’s recent price change (for the record, I have no inside data here, this is just an educated guess). Netflix has for the past several years been negotiating with Hollywood for the digital rights to stream movies and TV series as a single price subscription to users. Their first few deals were simply $X million dollars for one year of rights to stream this particular library of films. As the years passed, the deals became more elaborate, and the studios began to ask for a % of the revenues. This likely started with a “percentage-rake” type discussion, but then evolved into a simple $/user discussion (just like the cable business). Hollywood wanted a price/month/user.
What this means is that Netflix had to separate the streaming and DVD rental, they had no choice. It would be impossible for them to publicly say that the Movie Studios were racking them over the coals. How could they and still remain on good terms with Hollywood? Both the music industry and the movie industry are doomed because the marginal cost of their product is close to zero. All the expense is in the creation of the product. The marginal cost to the studios is about $1 to make a DVD from the already created product. While there is a cost to streaming, it is very low.
I am not sure what this means in the long run, but eventually the power of the Hollywood mafia will shift from them to the consumer, and not getting cable is a part of that process.