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.