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Would you pay for Netflix Premium?

Last year brought Netflix euphoria. I figured out how to access it from New Zealand and fell in love.

Where I had been ripping my DVD collection to hard disk to save on storage costs, punting boxes of DVDs to the garage, I started just checking whether each was available on Netflix. It's easier to stream than to rip.

And so the New Year brought a reduction in Netflix's stock of film rights. Where rights-holders had been happy to sell them streaming rights at low costs when Netflix wasn't much of a competitive threat to their cable offerings, that changed when folks started seeing them instead as substitutes. Bloomberg explains that they just can't maintain their library on $8/month subscription fees.

I'm sure that the Bloomberg piece is right. But what about $40/month subscription fees? I'd be happy to pay that much for streaming access to everything in Netflix's DVD collection. They could call it Netflix Premium.

I don't know that this strategy could work. The rights-holders would rightly expect that most Premium subscribers would be substituting away from some of their (potentially) higher value cable subscribers, and, more importantly, away from their DVD and Blue-Ray offerings. But they'd likely also be picking up some who never would have paid for a DVD but were hitting the Pirate Bay.

Things that consequently need testing:

  • What's the elasticity of downloading with respect to Netflix availability? We've the potential for some clean tests, with films coming into and out of Netflix availability, along with differential geographic access to Netflix. 
  • What's the elasticity of DVD/BlueRay sales with respect to Netflix availability? Same testing potential as above.
  • If Netflix does more to turn pirates into paying customers than it does to induce cable/DVD customers to flip to Netflix, then making it too expensive for Netflix to get rights is a bad idea.

Dr Eric Crampton is a senior lecturer in economics at the University of Canterbury. He blogs at Offsetting Behaviour.

Comments and questions
8

And you're prepared to pay 40 bucks a month! Are you nuts or what?

For on-demand access to everything in their DVD library, streaming? Sure!

How about netflix being the digital source of your purchased DVD/Blue-Ray titles. You enter your code from the purchased product and it appears in your library, similar or that of ultra-vilolet. This will allow you to have a centralised collection and keep the current low monthly fee. The rights holders should look to use netflix as digial outlet the same way steam is used for Gaming...

The whole digital entertainment industry needs to rethink its business model.

It is head in the sand stuff trying to support outmoded distribution channels when consumers are demanding other types of access to their material.

The internet provides a ready made market whereby production houses can release straight to their audience reducing the cost of access whilst increasing their own margins.

I am one of the "pirates turned Netflixers"; although I still do a fair amount of downloading. My rule used to be that if it is available in New Zealand at the same price as elsewhere and the same time then I will pay for it; now I check Netflix first and will watch it off there if available. If it is unavailable then I will revert to my original rule.

At $10 a month Netflix is additional to Sky for me; but, with Sky's measly offerings, it is becoming more of the first choice.

A nice approach, James. Few of us want to be a dork who goes around ripping people off when it's easy not to. However, there's sometimes little alternative for watching decent content. Better it gets viewed than not, I reckon.

Cheers,
Mike

Nice post, Eric. I too have been thinking about issues such as you discuss: how long will it take someone to develop a TV/video version of Spotify? In some years time, I hope almost everything will be legally available for streaming to someone wanting to pay more.

Unfortunately, it looks like it will take some longer for the video industry to get there than it has the music one. The former has a much more developed system of content rights. I've also seen it argued that profitability isn't as much of an issue in it.

It would be a cool thing to be involved with, finding the right model to see it developed.

Cheers,
Mike

iTunes / Apple TV. It costs more, but movies are available for streaming not long after they were in the theatre. With a US account (not hard to set up), movies are often available before they are in the theatres. And the selection is excellent.