Media pricing is subjective. Yes, its cheaper than buying outright on iTunes; but its still more expensive that pirating it. It'll make a great pricing experiment.
Everyone values content differently.
EDIT: Easy on the downvotes y'all. I don't pirate my content, I'm saying people will.
If the legal distributors can't compete on price, and refuse to compete with quality or convenience, what else have they got?
The problem is that legal sources have issues around trying to controlling when/where/how the content is viewed, which might be the majority of the value in the media (over and above the content itself).
Does the creator truly win out when the content is paid for? I'm using music as an example; not sure how its panning out on the Netflix/video side.
> guaranteed quality
Can you always reliably get 1080p from Netflix? Because you can from TPB.
> avoiding legal entanglements
Which is now a moot point considering the number of judges who have indicated that an IP address in a log can't be tied to a specific end user.
> cheaper traffic, higher speeds
Again, as with quality, I think this depends on your ISP. You'll only get frustrated so many times with Netflix rendition switching or buffering before you'll fire up your bittorrent client, let it suck down 10-20 episodes, and watch at your leisure.
The ads model works as long as its not too painful. 2-3 ads/show? Reasonable. 12+ ads per show (because you're addicted to ad pricing on broadcast, and for the love of god please can't we get that on the web)? Pirate Bay.
$7.99/mo had that perfect impulse-buy attraction to it, and got me into the game. But after using it and seeing the kind of content they've been building (even despite the content that they've lost, and will contractually have to lose later), $10/mo still seems pretty palatable to me too.
The price of $2 or $3 per episode does not itself justify that the cost of Netflix streaming should increase.
I could create an alternative service that charges $50 or $100 per episode, and the existence of such an absurd service does not itself imply that Netflix should charge $20/month.
Recently, I've been really impressed by the quality of the streams I'm getting from hbogo vs typical show on Netflix. Hopefully this allows Netflix to push higher quality streams down the pipe.
Or there is a magical setting I'm missing...