As you couldn't possibly have missed, Netflix announced changes to their subscription plans this week. Specifically, they separated streaming subscriptions from disc-based ones. It used to be possible to add DVD rental to a streaming subscription for $2 extra, but now you'll have to pay $7.99 more for a single-disc plan.
While many are complaining that the company raised their rates by 60%, it's more accurate to say that Netflix changed their plan offerings, removing the combined streaming/disc option entirely. Reports of a customer backlash abound, with many disgruntled subscribers threatening to cancel their accounts. Of course, people say a lot of things in comment fields on the internet, and I doubt anyone really interested in watching movies via the net will cancel. Thanks to Netflix's massive success, other options are limited.
Dissatisfaction at Netflix's pricing is an insufficient explanation. Instead, I think the problem is this: customers haven't been taught how to think about the process of choosing and viewing streaming movies. It's a complicated problem that has less to do with customer wishes and more to do with the interaction between Netflix's product design and Hollywood's streaming rights licensing process. Instead of treating this limitation a scaffold for the design of a different experience for home video viewing, Netflix has sought to reproduce the old video store model online, and that's what's caused the dissatisfaction.
As Peter Kafka observed, Netflix doesn't really want its customers to pay more, but to drop their DVD plans entirely. For one part, this would save Netflix the trouble and cost of warehousing and shipping discs. But for another part, and more importantly, getting more customers to drop DVD delivery service would allow Netflix to exert new pressures on Hollywood licensors regarding streaming films.
As savvy customers may already know, the DVD catalog is big because Netflix just has to buy the discs and rent them out. But streaming rights have to be licensed individually from the studios, a time-consuming and laborious practice fraught with risks out of Netflix's control.
But better licensing arrangements don't really solve the problem of online video selection. In the context of the changed market for Netflix has done a terrible job inventing a framework for understanding streaming video as something different from video rental.
Think about the architecture of video rental stores. You could wander in and browse the walls of new releases. Every movie that had been out in the theater eventually made it to video, and it was just a matter of looking for an appropriate title you'd missed in the theater for whatever reason. Older films occupied the center aisles of these stores, organized by genre. But most rentals were new releases, not old ones.
Netflix gives customers the illusion that video rental hasn't changed; it's just moved online. But that's not true; the licensing situation for streamed movies means that the entire experience of choosing what to watch is different.
Yet, Netflix has been self-contradictory in their design of this experience. On the one hand, they've created a data-dense collaborative filtering system that's supposed to be able to recommend films based on previous preferences. This feature sits almost entirely outside of the logic of new releases. But on the other hand, the service still primarily presents films and shows in genre categories, including the entirely misleading "new arrivals," which customers reasonably interpret to mean "new releases" rather than "we just got the rights to stream these."
When customers complain that the streaming selection on Netflix is poor, they're right—compared to the disc service or the local video store (if you still have one), Netflix streaming offers less selection. But even if people think they want selection, is it what they really want? Browsing a bookstore is an inherently pleasurable experience, but the same was never true of the video store. Remember how awful and onerous it was to wander aimlessly through your local shop looking for something appealing? Remember the angst and disappointment of undirected visits to the Blockbuster? It was always more like hopeless channel surfing on cable (or for that matter, scouring through the Netflix streaming selections) than it was like discovering something unexpected. Meanwhile, cable on-demand and premium channels continue to offer new films soon enough after theatrical release that the "new release" concept remains predominant in the minds of home movie viewers. When push come to shove, we just want to watch Transformers 3 as soon as possible in our dens.
All of which is just to say, Netflix has clearly failed in their years-long effort to shift video selection to collaboratively filtered recommendations organized in a "queue" of exciting titles ready to be delivered via mail or ethernet. Otherwise we would have realized that the streaming selection is already massive enough to sustain an organic, meandering walk through unknown and unfamiliar films across genres, and they would have realized that the discs they order by mail mostly sit around on the kitchen counter. Instead, we seem just to want a specific film, probably a new release, from an online version of Blockbuster. Netflix didn't kill the video store, it just remediated it badly online.