In recent news, leading DVD/Blu-ray rental-by-mail service Netflix has announced, and been providing notification to their customers, that after April 27, 2009 customers that wish to rent or continue renting Blu-ray discs from Netflix will have to pay an even *higher* “Blu-ray tax” to Netflix.
As of, approximately, October 2008 any customer that wanted to receive Blu-ray discs as part of their monthly service at Netflix had to pay Netflix a $1.00 per month “Blu-ray tax.” Those that didn’t want to pay the fee could opt out of receiving Blu-ray discs and avoid the fee but then they’d be limiting their service to receiving only DVDs, and of course would be limited to the lower resolution and lesser sound quality found in that format (as compared to the higher definition and higher quality audio formats that can be stored on Blu-ray discs).
While I wasn’t thrilled with paying that additional $1.00 per month, the fact that the charge was a flat fee and was touted as being necessary to help pay for the more expensive discs to stock the inventory with helped soften the blow somewhat. Comparing the costs of Netflix, and factoring in that as a Netflix subscriber I can stream content from Netflix’s servers to my Xbox 360 or to my PC if I want to, Netflix still seemed to be fairly reasonably priced.
Well, here we are approximately 6 months later, with Netflix having pocketed approximately $500,000.00 per month from their subscribers thanks to the original $1.00 per month surcharge, apparently the powers that be at Netflix have decided that if $1.00 was good, many more $1.00 per month will be much better. I guess the thought hasn’t occurred to those powers that be that we’re in a recession and that people have been cutting back on discretionary spending, so the folks at Netflix are now going to scale their Blu-ray tax up based on how many discs a customer is paying to keep out at a time. If you go with the maximum 8 discs out at a time plan you’ll be zapped the most, while if you subscribe for just 1 disc out at a time you’ll pay the smallest surcharge.
Again, the powers that be at Netflix claim that this is all because Blu-ray discs cost more and in order to obtain enough inventory to satisfy increasing customer demand for Blu-ray disc copies. Assuming that Netflix doesn’t chase away many of the 500,000 customers that were previously paying that $1.00 per month fee, or at least that Netflix is able to get enough $2.00, $3.00, or higher fees to make up for the customers they are chasing away, Netflix might, just might, be able to better balance demand for the few Blu-ray discs they are purchasing for their inventory. That’s a lot of if’s and might’s though, and there is no guarantee that Netflix won’t be chasing away more customers than they’ll keep thanks to this change.
I’m picturing Netflix never actually buying more Blu-rays because they’ll continue to cry over the costs and won’t actually see enough of their subscribers paying the new higher Blu-ray surcharge until they decide that Blu-ray must be a dead-end format, which gets me to the real point of this article and a suspicion that Netflix is guilty of something that Microsoft conspiracy theorists said about their lack of hard support of the HD DVD format: Netflix wants streaming media to be *the* format of choice for customers that want high definition rental content in their homes.
Unfortunately for Netflix they must tread extremely carefully here. Streaming media, or media delivered via broadband (such as Apple TV) is still very much in its infancy and unfortunately for Netflix, Apple TV has already established some dominance in that market and there are others in the field as well (including Sony and Microsoft). There’s absolutely no guarantee for Netflix that they’ll become a dominant player in that market, and if they wind up foregoing a spot of dominance in the disc rental-by-mail market they could find themselves losing in the one market they were able to really compete in.
I can’t say for sure that Netflix is really trying to hold back the growth of Blu-ray as a disc format. I know they’ve been publicly crying about the increased costs of the discs (as have the customers that have been buying Blu-ray discs), but then again Blu-ray discs really aren’t that much more expensive than DVD discs were when that format was first becoming popular. DVD discs used to be much more expensive than the current bargain basement prices that we see for new releases. DVD prices, at least by my memory, were in the over $20.00 range all the time. It was rare to find a new DVD release for less, at least until the last few years where prices for DVDs dropped to a relatively bargain price in the $16.99 - $19.99 range. Compare those prices to Blu-ray prices that tend to run $25.99 - $39.99 and I guess you might sympathize a bit with Netflix, but then again assuming that Netflix is able to rent the disc to somewhere over a dozen customers before the disc is damaged so badly it can’t be played and must be replaced and you start thinking about just how many more rentals of that disc are needed before those costs are all gone and the rest becomes profit for the company.
The internet is currently running rampant with furious words for Netflix (like the ones you are reading here) with customers like me threatening to cut back on their subscriptions or abandon Netflix entirely in favor of going to Netflix’s arch-rival Blockbuster (either their .com/by-mail or brick and mortar stores). I’m considering that possibility myself and will run the numbers to determine whether or not I’m going to save money and get better service that way or not. If, as I expect, I’ll save money by switching then Netflix will lose all of the monthly fee (and the current $1.00 surcharge) that I’ve been paying them and it’ll register my dissatisfaction with Netflix in the best way possible – by attacking their bottom line. Apparently that’s the only thing they really understand currently, so that seems to be the best approach 
