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Customers have been raising a fuss since Netflix raised their prices last Tuesday. Granted, a 60 percent price jump is difficult to justify, but the biggest question has been why. Netflix originally stated that the increase "better reflects the cost," and some of us may have scoffed at that; however, this may be exactly why we are now paying more. When costs go up, prices tend to go up, and the biggest costs to Netflix come from the six major movie studios in Hollywood.
According to a report today from CNET, not only have movie studios been jacking the costs of Netflix to sky-high levels, some analysts believe that Netflix is actually using this customer dissatisfaction as leverage to force Hollywood to stream more and better movies. (Yay! Wait, how does that work?)
OK, so first, using a report from The Hollywood Reporter, CNET claims that Netflix just inked a deal with NBC Universal to continue to stream content; the original agreement was worth about $25 million a year. Guess how much they think the new deal is worth? No, higher. Higher. Yeah, no. Try $300 million. A year. Sort of puts your $5 a month increase into perspective. CNET, using analyst reports, also claims that the Starz is looking to bump their latest deal with Netflix from $25 million a year to around $300 million a year. Another analyst in the article reports that Netflix total costs for streaming content may jump from about $180 million in 2010 to around $2 billion in 2012.
And just to further complicate things, CNET refers to a discussion with Eric Garland, CEO of Big Champagne, who claims that Netflix is "deliberately creating dissatisfaction." Garland claims that Netflix, aware that their library of first run content is fairly weak and that this price increase will make consumers angry, wants to use this anger to help pry content away from the studios. See, the theory goes like this: by jacking the prices, Netflix customers will complain that the streaming library is, well, less than ideal, and this will inevitably put the focus on the studios for not allowing more content to be available on demand or streaming. According to Garland, this whole situation is Netflix saying to the studios, "You're going to have to make all of your content available in a way that your customer has clearly indicated he or she wants," and that this public uproar is "going to demand remedy."
Not sure if we are following that conspiracy theory, but as the battle between DVDs and streaming continues to heat up, these battles between content producers and content providers is likely to get just as intense -- and we'll be watching it every step of the way.