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Deciphering Netflix Pricing Strategy

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If you've found Netflix's pricing pyramid a bit tough to unravel, you're not alone. The cost of renting 3 DVDs is $17/month, whereas 6 DVDs is $36 (16.99 and 35.99, to be precise, but we don't count pennies here). Similarly, 4 DVDs is $24/month, 8 is $48. By traditional economies of scale, this may not make much sense: Getting 6 DVDs costs MORE than getting two 3 DVD subscriptions. And getting 8 DVDs isn't any cheaper than getting two 4 DVD plans.

But let's break this down a bit differently. Netflix plans start at $9 for 1 DVD and increase with each additional DVD like this:

2nd 3rd 4th 5th 6th 7th 8th
+5 +3 +7 +6 +6 +6 +6



The 3 DVD plan is an outlier here, which can be explained by Netflix's competition with Blockbuster. In order to be competitive, Netflix aims to keep the 3 DVD plan (its signature plan) as low as possible in order to lure customers in. (Blockbuster charges $16 for 3.) Once customers are hooked on a Netflix plan-any lower plan-they're going to realize how slack they are to return movies and lazily decide to upgrade. That 4th CD is going to cost them, and so will the 5th, 6th, etc.

As far as we know, this doesn't have anything to do with Netflix's practice of penalizing heavy users with slower service. If you're a heavy Netflix user and are concerned about getting punished for it, check out GeekTonic's work-around.

(Thanks to Alex Lunney!)
[Photo: bebop17]

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Umm, I manage just fine with the 2 DVD plan. I actually can't keep up with Netflix (I do too much other stuff), and might downgrade to the 1 at a time. Question - Does anyone really do more than the 2 at a time plan, and if so, why?

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@farcedude: I don't do it (I'm on the 1-DVD unlimited plan), but I've considered upgrading to the 3. That's because friends and I like to have movie nights where we watch multiple films off our 'gotta watch this' list in one go. I also enjoy many television series, and it's nice to be able to have more than one disc's worth of episodes (hence why I used to purchase box sets). When you finish one disc, you send the other back, and by the time you're ready to return the next, a new disc has arrived.

It depends on how you plan on using it. If you just want to enjoy the occasional film, a low quantity plan is great. But if movie-watching at home is a social event for you, or you enjoy television series or multipart film epics (or a film spans multiple discs), more discs are more convenient.

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@farcedude: The 3 disc is perfect for me when I have the time (I tend to have more time during the winter months) and especially when I'm watching tv series. At one point I was between jobs and using the 4 disc series.


My friends have a large family and get the maximum, but they ALL use it.

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My mother uses the three DVD plan, i do believe. She "shares" the plan with her mother, my grandma. Since its cheaper (and since my grandma wouldn't get much use out of it), whenever my grandma wants to see a movie (or a tv series, etc.) my mom just orders it and then takes it over to my grandma, who sends it back. I know that this *probably* isn't quite legal in their terms of service, but meh. Something like this would be the only way I could really see needing more than 3ish DVDs at a time.

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Don't forget that you can copy the DVD or Blu-ray onto your computer for later viewing and immediately send the disc back to Netflix to receive the next disc in your queue. You can really move through your queue quickly and then watch the shows at your convenience off your computer.

Netflix paired with DVD Shrink or AnyDVD is a perfect match.

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why don't you just get the netflix box (or an xbox) and download the movies right away? However, I have no idea if this works with all their movies or just select ones. still an idea if it works for all their movies.

we apparently have a netflix fulfillment station locally; we get our movies the next day, they get it back the next day. I have almost no time between movies, so I just do the 1 rental/unlimited.

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I have the 3 DVD plan and with the Instant Watch I absolutely do not need more DVDs at once. Hell I have 3 discs of X-Files at home right now just sitting there while I watch Dead Like Me instead on Instant Watch. I can't imagine needing 8 Dvds at once, unless you really like staggering the mailing so you get something in the mail everyday.

Which is nice. Getting mail is nice.

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I have 3 and enjoy it, but am considering going down to 2. I have a backlog of DVDs borrowed from friends that I tend to watch, and maybe it's worth saving a few ($3+tax?) dollars a month. I have a quick turnaround since I think I'm near a distribution center. 2 seems like it give me 1 DVD @ home almost all the time. OTOH, what if I start watching more DVDs in the fall/winter? Then I'd have to switch back to 3.....


/overthinking this

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@EdnaLegume: Sadly just select movies, they haven't digitized their entire collection.

But, that being said we've been subscribed to Netflix for probably 6 months now and have not yet watched our initial DVD. It's just so very easy to fire up the XBox and watch something. So the fact not everything is available to download hasn't harmed us yet.

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@farcedude: I started on the two-DVD plan, then like you, thought it was too much, so I'd never do more than 2 at a time. Then I downgraded to the unlimited 1-DVD plan, and then stopped altogether. I don't miss Netflix as much as I thought I did.

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@farcedude: Jeesh. Get off your high horse, Mr. "I'm so much busier than You". I had the 3-disc plan when I didn't have cable, and it suited me just fine.

I have to run, because I have sooooooooooo much stuff to do. I've got a lot of stuff going on right now - probably not as much as you, but still, I'm keeping myself pretty busy.

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You defiantly get slower 'New' movies if you are a heavy user, this was confirmed by a customer service rep.
I had a movie on long wait for a long time and when my fiend signed up he got it the next day.
When I called up she said 'Heavy' users are low on the queue.

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@farcedude: Pretend you have a family that lives with you (spouse and children). All of your likes are not the same, but overlap in some genres. Its easy to see how even 3 can sometimes be limiting especially if you are waiting on the return of at least 1, which takes min. 3 days from when you sent it. I will watch G rated with my 4 y.o kid, but I can't expect them to watch a PG-13 or R movie that my wife and I want to watch.


I will get more per month once I cancel cable TV. Most of the time, there isn't anything on anyway , and there's tons of old movies i'd like to see and TV series are coming out on video that I can watch when i want, once i also get rid of the DVR full of crap I have no time to ever watch.

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@SubzeroScientist: I occasionally use film clips or documentaries in classes I teach, so I'm on 3, sometimes 4 out at a time. That way my school needs don't take away from our leisure viewing. I downgraded to 2 for the summer, and won't upgrade to 3 until I need something for class.

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@farcedude: My husband and I got rid of our cable and upgraded from the 2/month plan to 3/month. Once we got our 360 hooked up for unlimited streaming, we went back down to 2/month. It's nice because we can both have a disc from each of our profiles. We were eating up our queue when we had 3 discs though. Which was nice since my profile alone hovers at around 270.

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@ReasonableGuy: You can do that if you don't mind doing something illegal. Your post is the main reason they started to "throttle" fast-moving accounts.

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@korybing: Have they fixed the licensing issues w/r/t the first season of Dead Like Me? The last two shows aren't available for streaming and I don't want bump my queue down just so I can get the second disc to watch them.

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@KP1973: Jeesh, I was just laying out my experience, not trying to say I was better than anyone else. I was also just trying to understand why people did the more than two at a time, not trying to criticize anyone for not being as busy as me. Wow.

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@farcedude: We've been a 3-at-a-time customer for many years. The biggest value to us is getting to watch nearly a full TV series in one swipe if we feel so inclined. (Which is perfect with Scrubs which has 3-disc seasons.)

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@farcedude:

yeah i have the 8 out at a time with bluray plan right now. i usually am on the 3 with blu, but will upgrade to higher plans for a month or two, if i know i will have more free time, or if i really get into a season of something, like when i went through all the star trek series. there was nothing i hated more then finishing the last disc i had on a Saturday in the middle of a season and not be able to finish it until Wednesday (ship out Monday, they get Tuesday ship same day,have the new discs on wed).

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I'm on the 3 at a time plan, watch all of them on the weekend with my son. Only time we're home together, and my dear hubby hates horror flicks. three work out perfectly for us between sat & sun. Comes out to 3 a week the way we do it.

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@farcedude: I'm a single gal, living alone. I have the three DVD plan. On nights where I don't have much planned (a few times a week) and there isn't anything good on TV (pretty much always,) I'll usually end up watching two movies back to back. With this plan, I can send those 2 back and still have something to watch until the next pair arrive.

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@EdnaLegume: The online selection is pretty limited. I've pretty much watched all of their streaming selection (the ones I am interested in, anyway) already by going on a movie benders over a few weekends.

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I don't see why one would think the economics of scale would apply to something like DVD rentals. In fact, I can see how they would like to encourage people to have fewer out at a time. First of all it reduces the total number of DVDs they need to have in their inventory to keep everyone happy; imagine how hard it would be to get a popular DVD if everyone had an 8 out at a time plan with their current inventory. I'd also guess that having fewer out at a time reduces the chances that people put the wrong movie in the wrong sleeve and other minor hassles.

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I have the 3 dvd plan. If I am diligent I can get 6 a week, 24 movies a month. I've never suffered any throttling. Once in a while something gets stalled because a particular oddball DVD stalls the process. I tend to not do too many new-new movies tho.

Netflix is a lot more convenient that pirating movies. Better selection of older stuff. Standard quality. And just less work.

The pricing plan is goofy.

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@farcedude:

I used to do 3 at a time, before they hit us with blu ray surcharges...then I dropped down to 2 at a time. We usually manage fine. If we burn through our 2 movies fast, we just get on the xbox and watch 2nd tier movies.

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So my grandfathered 4 for the price of 3 plan is a better deal than I realized!

I will have been a customer for 10 years in December. I have been so bad at returning DVDs I could have purchased every one for what I have paid Netflix in total dues. But we really do get value from Watch Instant with the TiVo series 3. The children's programming is plentiful, and they have seasons 1-4 of Lost in HD, so we have decided to start watching that series.

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@ReasonableGuy: It simply amazes me that someone would post about the violation of a Federal law that carries a fine of half a million dollars and a hefty jail term.

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On the 3 out plan I get around 20 movies a month and don't feel throttled(I am too cheap for cable). I sometimes have to wait a week or two I guess. I understand that in this type of model we can't all get new releases at once. They definitely don't throttle me as far as sending movies out, I always get a one day return time. Many years ago they didn't admit to it, but I did get throttled and went to BB for awhile- but then BB throttled me worse.

Even for high use users the three out plan seems to be the sweet spot, I guess if you want any more than that you are better off doing another plan. For me, I do get stuck a few times without a movie- I then can go to Redbox or the library to tide me over.

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@aloria: the online selection is pretty decent for tv shows though. i watched seasons 1 and 2 of 30 rock completely through view instantly..

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I looked into upgrading to the 4 at a time seeing as I'm unemployed and watch way more tv than i should, but I cannot cost justify the price difference. I did have 4 at a time when I got my class action lawsuit settlement...free upgrade for a month that I completely forgot about until i received the email

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@farcedude: I do two at a time as well. But I know when I'm renting tv shows, and I get into it. I hate watching two discs and suddenly being forced to stop until the next one gets in.

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@sponica: I too am unemployed and I have had the 3-disc plan since I joined back in 2006 or 2007. I am thisclose to canceling my directv package and bumping up to the 4-disc plan. I no longer have any premium movie channel plan on directv, but I have whatever they call it that's just above a basic level.
I too watch more than I should, but with more and more tv channels adding extra screen text to their shows, I can't see the picture anyway, so I don't even watch them. I like my clear screen viewing with a dvd.
As for throttling, I accept that I am not going to get a new release the same day it comes out. I put it on my queue and bump it down so by the time it is listed as available (i.e., no waiting) I can watch it the next day when it pops to the top of my queue.
And of course, Netflix has just started their Saturday processing, so that's even better. Of course, the USPS has to not cancel a delivery day and I'll be happy.

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I think that the "throttling" is more or less a response to the unspoken Netflix pirating that is going on. I know multiple people who get the biggest plan on Netflix, get the discs and rip them to HD or DVD and send them back more or less the same day. Let's face it, if you're watching 3 movies a day then you should either be working in the movie business or you're a pirate. I have no problem with people using it for this reason, but don't complain when Netflix slows down your delivery.

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@squinko - Coming Soon: When DDoS Attack!: Throttling is illegal if they claim the plan is unlimited.
@feckingmorons: That law applies to mass duplicators, fingmoron.

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"As far as we know, this doesn't have anything to do with Netflix's practice of penalizing heavy users with slower service..." - I know this isn't the matter at hand, but that shit pisses me off. How does a movie that I put in the queue go from being available now to suddenly being unavailable for a LONG time? Especially when it's a ten year old movie that I can't imagine too many people really wanting? The thing is, I don't even rent that much, but apparently I rent just enough to piss off Netflix...@_@

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@ReasonableGuy: Well-said ReasonableGuy. Don't listen to the Kantians. If Netflix would make more new titles available for online viewing your approach would not be necessary. Apparently, eating up the USPS's time with our leisure habits is a more acceptable offense.

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@Daveed:

Heh that happened to us this weekend. We were watching True Blood, and had disk 1. If you scroll through the disc, it shows all episodes, but if you scroll down, it doesn't have a play option. Disk 1 only had 2 episodes...so we were all set to continue and ...had to wait 3 days.

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@farcedude: I do 3 at a time. My BF and I have very different tastes, so I like to have 1 or 2 for myself. Plus, he has to be in the mood to watch something. For awhile, I barely used it, but now I'm back to full capacity.

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@squinko - Coming Soon: When DDoS Attack!: Yeah, I don't mind too much. I'm not selling copies for profit, just doing it for my personal use. The same could be said about sharing music, etc. I'm a longtime paying customer for Netflix, and from their perspective I'm an ideal patron.

I never have had any problems with throttling (didn't even know Netflix did it until I read it in your reply). Turns out Netflix was successfully sued for throttling customers: [www.msnbc.msn.com]

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@feckingmorons: You actually read the boilerplate warnings before watching a DVD?

If I was running a business selling copies for profit, I would agree with you. If you're just using it for personal use on your own computer, I don't see the problem with it. The decision to optimize the Netflix experience is up to each individual.

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I have the 8 at a time plan, and have gone through 12-16 discs per week for over a year with no instances of throttling. The linked articles on Netflix throttling are from 2007 and 2006, and in my experience are outdated.

I like this deal, because it fills my entertainment wants and is less expensive and more convenient than cable or satellite. I could cut back on the discs, and do more with Netflix Instant (online streaming), but I prefer having the physical disc - even if it is only a rental.

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@morlo: So you immediately delete those DVD copies after use, right?

...

Wow, do you photocopy books from the library too?

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I was 1 dvd plan when I wanted to watch movies but upgraded to a 3 dvd plan when I wanted to watch television series. In fact my list is full of television series now and it was very useful to me when I wanted to watch "The West Wing" and Thundercats.

I just wish Netflix could add Korean and Japanese television drama so I wouldn't have to go to Tigercinema.

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@farcedude: Funny thing-I had the 3 DVD plan, and then the next movie on my queue had a "short wait." What they did was they sent it from a shipping facility in California that had it (I'm in Florida) They said that since it would take 3-5 days, they'd also send my next one, which would temporarily give me 4 at a time. They said to then receive my next DVD, I'd need to return 2 (since I had 4). But I returned one, and they sent me another. And so I still have 4. I'm thinking this must just be an extended fluke since I reported one broken at the same time as this "extra" DVD thing, so they're giving me three in addition to the replacement DVD. Either way, I'm happy having 4 DVDs at home right now.

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@SubzeroScientist: Exactly, over the summer last year (when I had more money and an internship that required me to work far fewer hours) I had 5 DVDs at a time. I'd generally stagger my Queue so that 2 or 3 or even 4 discs I received at one time would be from a TV show set (depending on how many discs a season is spread to-I hate, I mean HATE not having the entire season at one time, it ruins my view-pacing) and the remaining were movies. Plus instant watch. And the instant watch, oh man don't get me started. I got over 100 discs that summer. I'll never have that kind of time again!

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@SubzeroScientist: And during the school year, when I have very little free time (and parties to go to) I usually get the two a month plan. It lets me keep watching what I want to watch for very little money, although no instant watch

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@EdnaLegume: the online selections have been pretty good for me, plus they have some online that they DON'T have on DVD. i maximize my plan by using both and always getting the dvd if it's something i want to watch the special features on.

the parts that annoy me are like when i was watching a two part miniseries.. and they only had part 1 on instant viewing. my fault for assuming they put both parts in the same place. but nooooo. part one wasn't available as a DVD and part 2 wasn't available in instant viewing. now i always check to see what parts of any multi episode thing are available before letting myself get hooked in.

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@global_dev: My older brother actually has netflix 7 at a time (he's 28, corporate drone). $40 a month for netflix sounds expensive, but it's comparable to basic cable, and much cheaper than splurging on an HBO/Showtime/Starz package every month. Around 50 discs a month of varying new releases/classics/TV shows isn't bad at all, much cheaper than most people's cable plans. Personal choice though