Netflix will likely survive its recent 60 percent price increase for unlimited streaming video and DVD-by-mail services better than many think. After all, even if Netflix loses 20 percent of its customer base for the unlimited offering, the company will still get 60 percent more revenue. But the real problem facing Netflix involves current content.
There's not yet enough to satisfy many consumers.
Netflix has been working hard throughout 2011 to add more content to its streaming video service, the area to which it's been trying to move exclusively. DVDs by mail are an expensive business proposition, so Netflix has been positioning itself as primarily a streaming video company, and it wants to leave the DVD-by-mail business behind.
But there's just one problem: Netflix has a very limited streaming video library.
Netflix has more than 90,000 DVD-by-mail titles to choose from, so customers liked the great $9.99 monthly price on unlimited streaming video and DVDs by mail (one at a time). They could get most any DVD they wanted one at a time, while having the added luxury of unlimited DVDs by mail. But take the 90,000 DVD titles out of the mix, and customers are left having to chose from more than four-times fewer titles -- less than 20,000.
Additionally, Netflix customers won't find as many new releases as they may like, as many titles on the streaming video service are older, dated content.
To solve this problem, Netflix has been working aggressively to make more deals with more studios and distribution companies -- but the going has been slow, and hard. In early 2011 Netflix signed a content deal with CBS, and added more content from ABC Disney, and in the months since the company has acquired much more.
Netflix's strategy is to be the dominant streaming video provider globally, forcing studios and distributors to play more by its pricing terms through mass advantage.
But the current streaming videos offering by Netflix remains slim for the tastes of many customers as they drop DVDs by mail over the 60 percent price hike, opting for Netflix's online streaming offer only.
The challenge for Netflix in the streaming video market is that the company must pay a premium to get new properties, while many of the older videos it has were obtained much more cheaply. The company understands this well, and is quick to explain that's what the price increase is all about.
To give more, it has to get more -- particularly in the DVD-by-mail segment, which is costly to operate, and the area Netflix wants to eventually get out of.
But the big question facing Netflix now is not the price increase, but how much new content the company can quickly get into is streaming video offering?
The company is trying to move fast. Time will tell whether it can move quickly enough.