1. they made streaming a free add on to DVDs to get people using the service, which resulted in streaming becoming popular.

2. The media owners started to (or perhaps always had) cut their deals with Netflix on a per subscriber basis rather than per view. So Netflix was paying the networks for everyone who subscribed, including evyone who only watched DVDs. This became unsustainable.

3. So, they needed to separate these people, thus the split.

I honestly don't see how they could have handled this differently, they needed to tack the service on to DVDs to get people on board, and they needed the services to be separate to actually make money on streaming long term. It might have worked if they had been able to pay for videos on a per view basis, but I'm not sure they have the clout to make that happen.

"However, the contract Starz has with Sony has a subscriber cap with regard to Netflix. The home entertainment company now has more than 23.5 million subscribers, which exceeds the cap. Starz pulled the movies from Netflix so it wasn't in jeopardy of violating its deal with Sony."

http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/0...

I think it explains the facts in the simplest way.

Netflix competes as a delivery pipe for content with Cable providers.

Cable providers already get ~$50/month for your Internet connection, and spend (collectively) $32 billion/year on streaming content, aka "cable TV".

Netflix wants to build on top of the network infrastructure of Cable providers while paying far, far less for the same content. This is their business strategy.

Verdict? Sell your Netflix shares. They are trying to operate a toll booth on a road they don't own. Furthermore, the actual toll operators (the Cable providers) are already getting 3-4x the $$$ from users, are already paying for the streaming content, and they show no history of being as stupid as the music companies (Tivo anyone?).

I don't see how Netflix can compete. That streaming was Hastings' personal vision for the company means nothing without a way to get there, and as far as I can tell, short of legislation, there is no way to get there.

Currently, the content industry gets $32 billion/year for content. There are still a few people ("marginal consumers") that aren't paying for content now, but at a much subsidized price, are willing to view it.

These are the customers Netflix has right now for streaming.

Now here's the problem: marginal consumers are only marginal when the represent an insignificant portion of users. When they grow numerous enough, the pricing terms have to change. That's why Netflix is jacking up prices.

Eventually, Netflix will have to pay the same price as Cable providers for content (and it's nowhere as close to as cheap as what Netflix is charging now).

This is not the case. Getting access to the content will cost you an additional 70-100 per month, depending on the content package. That's significantly more than Netflix wants to charge, and the delta is a huge part of Netflix's appeal.

Your "toll booth on a road they don't own" comment sounds alot like Ed Whitacre's "my pipes" argument, and could be applied equally accurately to any non-free service that operates on the internet ("road they don't own.")

I mean, on the one hand, the cable companies are tied up with the old "channel" model and many of their subscribers are paying for shows they never watch. But, if the content companies are going to charge Netflix customers for shows they don't watch too, it is going to be very difficult for Netflix to compete.

For watching the trailers I prefer Apple's site: http://trailers.apple.com/trailers/

But I can't argue very strongly against your point as it was a complaint of mine before I dumped cable.

Although if cable would give me access to all their content (tv, movies, sports, premium channels) for one affordable flat fee I would go for it.

Either one alone? Incomplete service.

Both? Not enough value at the 2X price.

We kept our subscription open until the day the price hike would hit us (How does Netflix get away with "the moment you cancel, your subscription ends, no refunds for partial months"?!?), then canceled completely.

I tried to send them feedback explaining our decision, but I could not locate a "contact us" via internet vs phone, and I didn't care enough to call them.

I was on a $4.99 1-DVD at a time plan. Then I was on an $8.99/month unlimited streaming plus 1 DVD (yeah, unlimited streaming is worth the extra $4).

Nov 2010 it up $1/month. Then this year it underwent mitosis , becoming two $8/month plans.

Yes, $16 is less than 2 * $9, but the process feels like a 2X increase in under a year.

So far as no partial refunds, I know their agreement says that, but I saw a partial refund to my credit card within a week of canceling.

1: http://alt-tag.com/blog/archives/2011/09/dear-netflix/

After the most recent bad disc, I did what the OP mentioned, and honestly looked at what value I was getting out of the service, and I ended up cancelling. I understand that discs get scratched in transit or handling, and I understand that I'm living in the past as far as digital vs. physical media goes, I just think what it boiled down to for me is that when you separate the DVD and streaming services out, neither of them really stand up on their own as worth their cost. I'd probably re-subscribe to the streaming if they improved their selection or lowered the cost failing that, but I don't think I'd bother with discs again.

Then the split came. Quadrupling the price of "someday..." wasn't worth it. Copied the lists to a text file, and cancelled. Insofar as Netflix streaming doesn't have everything, iTunes (yay AppleTV!) has most everything else available on a whim for a mere $2-5/rental. With kids streaming their shows on demand (no scratches! no fingerprints! no oatmeal in the DVD player!) from a vast instant library, and me not watching much at all (but when I do, a few bucks for "this, now" works fine), one slick box fusing a few streaming video services (yay AppleTV!) works well.

I'm not sure how Netflix intends to attract back the million or so who cancelled. We've adapted; why return?

Since 90% of what I actually want to watch is only available via dvd, streaming was more of a convenient addon than the core product. That I was going to lose the integration between streaming & dvd made streaming pointless.

The combo of streaming and dvds is still less than we were spending (in $ and hassle) on dvd rentals from the local big-selection store most months. (And comparing any of this to the entertainment option of cable is a big win, obviously.) Redbox seldom to never has anything to interest me, and the lack of depth to the Netflix streaming catalog precludes me wanting streaming alone. I'm somewhat bad about holding a disc for a while (b/c I often get documentaries and educational stuff, so I have to be in the right mood), but my wife watches what she gets very quick, so that common complaint doesn't bite us much.

She regularly gets dvds that are rare enough that they have to ship the disc from across the country, and I really like that Netflix will send us the next disc from the queue to "make up for the delay" which has never been much of a delay at all. So, many times we have had one more disc on hand than the plan we pay for. Good customer service like that is still something Netflix does. The two-websites and queues plan made me worry they had lost their senses, but this reversal and having had three discs this week when I pay for two has me still in the loyal customer column.

DVD service is still valuable because there's literally no other way of watching movies that aren't available for streaming anywhere, Netflix or otherwise (which add up to a depressingly large amount). However, I am looking into Redbox as an alternative (which I wouldn't have done had Netflix not segregated their service...)

Streaming, despite the recent poor selection, pays for itself easily in the few TV series that we watch and are available. Spending $20 to buy a series on DVD or Amazon streaming vs a Netflix streaming subscription is a no-brainer.

If it ever happened that none of the series we wanted to watch were available on Netflix, we'd probably cancel (and renew if we found one we did want to watch.)

We were not either, so I would usually rip the DVDs when I got them and then watch it when we had time (also my only dvd player is a 360 and it's so loud...much better to stream over the ATV). After watching I would delete them...honest, I rarely watch a movie twice. Recently that became harder though because of increased copy protections.

How did other HNers respond to the price hike?

Canceled the DVD service the day the price hike was announced.

I thought about getting a ps3 for the BRD functionality and games, but at this point I don't want to deal with any physical media. Even if the 1080p is better, I've never looked at the movies streaming through the ATV2 to my 46" LCD and thought the 720p picture took away from the movie. Then again, I'm old enough to remember being the human remote control for my dad and I still have an old tube TV in the bedroom :)

You're probably right about 720 vs 1080. You've go to be pretty close to see the difference on a 46" screen. I believe I read that someone with 20/20 vision has to be closer than 8 feet to see the difference on a 50" screen.

If I was building a home theater setup with a huge projector (or giant LCD), dolby digital (7.1 now?), etc... then of course I want the best quality in everything I can get. A friend of mine has one of these setups and it is amazing.

The above is quite different than the family room TV though. I've seen BRD quality on my 46" TV and yes I can see the difference, but I have to look for it. It's been my opinion for awhile that picture quality and sound at 720p or 1080p streamed is mostly 'good enough' and people now want convenience.

As for streaming, from what I understand, 720p is actually better than 1080p when streaming, because 1080p streams end up getting compressed to the point that they actually look worse than the 720p equivalent. Fuzziness from stretching the 720p signal is less visible than blockiness from 1080p compression. Blu-Ray obviously doesn't suffer from streaming limitations, though.

However, the split made me livid, especially with the implicit message that Netflix doesn't want its original customers anymore. While that motivation probably hasn't changed, I'm placated for now that they're at least keeping the service under one roof.

I don't see how Netflix streaming is a good deal unless there is a significant increase in the quality of available content and that doesn't seem likely to happen anytime soon.

If you have them, it's worth it. If not, it's harder to justify.

The selection for kids was just a bunch of the same cartoons the networks re-run all day long every day on cable that we don't like them watching, so it didn't seem to make sense to pay extra so they could re-watch more of the same junk more often.

We cut the cable cord over a year ago, relying on Netflix Streaming for older content and iTunes for newer stuff. Even paying for the iTunes stuff, we're WAY, WAY, WAY ahead. I should do that math someday...

For things that aren't on Netflix, we sometimes use Redbox or Amazon's On Demand rentals, but mostly it doesn't exist for us.

I was probably buying a different service than Netflix thought they were selling: All the streaming movies I can stand for about $10/month, with DVDs as backup if they aren't streamed.

As others have noted, neither service on its own is worth the price to me. Streaming quality is OK. DVDs are usually playable but not always. Once I start the DVD and settle in with my popcorn, a refund or the next movie can't make up for the disappointment and wasted time of a half watched movie.

I'm price sensitive these days, as are a lot of people. I'm going with the library, and the occasional PPV on Amazon or Youtube. I don't have to watch every new movie, and most of my viewing was classics, indie and foreign anyway.

We were more annoyed by the Netflix change than enraged by it, and it was a convenient reason to examine the value vs. expense ratio of what we were buying every month. So while we used both the streaming and DVD services, we didn't use them enough to justify the expense. Same with cable. Now we just watch less TV and play the same amount of video games. Library card and internet usage have increased.

The biggest streaming issue was that I often watch movies with subtitles because a friend is hard of hearing. Subtitles were a grossly unreliable feature; they would appear at odd times, often in a big rush, making them useless.

(This when watching a movie via the Wii.)

I think what we (well, I) don't know are Netflix's costs for DVD rentals compared to streaming and how that will look in the future especially with the studios and channels negotiating new deals. Clearly they are trying to move everyone over to streaming and are now correcting because it appears that the public isn't quite ready for that yet. They found it necessary to shake things up when they could have enjoyed the gym model. I think they're a really smart company so there must be something behind it.

wow, when netflix first came out with the decision I thought it was a brilliant plan for a future business school case study of gross mismanagement of a formerly successful company.

Raising rates by 60% in a poor economy and making it hard for your customers to manage their movies? (not to mention throwing away brand equity of netflix in exchange for qwikster?) i wonder if the ceo has been on crack.