Netflix Gets Political as Pricing Threatens their Business Model

Filed in Uncategorized by on September 6, 2011 0 Comments

Netflix continues to expand global operations despite a major setback with cable TV channel Starz, and they’ve also formulated a plan to increase lobbying efforts in Washington. The company is taking a political stance in battling both U.S. and international issues that threaten the company’s business model. These issues include privacy for online video service providers, net neutrality, and policies regarding consumer billing, particularly caps on how much data customers can stream for a fixed price.

Proactive Lobbying

The company has just unveiled an online streaming service in Latin America, and they’ve also announced plans for expansion into Europe and Asia. Netflix just hired an executive to handle government relations in Washington, D.C. in a move that begs the question:

If Netflix feels the need to beef up government relations, what exactly is the company planning that consumers and/or the law would find so hard to swallow?

The High Price of Streaming Video

From a customer perspective, pricing is the company’s most pressing issue. Recently, Netflix increased prices a staggering 60% without bringing any additional services to the table. Their excuse for the price jump? Increasing costs to acquire and deliver films and TV shows. In particular, they cited that they had a “robust” streaming catalog that gave customers more variety and quantity, while simultaneously decreasing the demand for DVD shipments.

The move to staff a government relations office in D.C. should help them deal with the next major pricing issue on the horizon, assuming they have deep enough pockets to buy a few politicians. As streaming demand skyrockets, Internet Service Providers (ISPs) are likely to balk at the expanded network bandwidth demands. The ISPs may decide to increase their own data usage prices. If this occurs, customers would find that streaming “unlimited” video would dramatically increase how much they pay for online entertainment. This potential outcome severely damages Netflix’s current business model for streaming video at a fixed price.

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