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Netflix executive says users can now 'vote with their checkbook'

September 15, 2011 |  5:37 pm

SarandosOprah
Netflix's controversial new pricing strategy that raised monthly fees 60% for some people is a way for customers to "vote with their checkbooks," the company's chief content officer said at a media conference Thursday.

Previously, Netflix charged $8 for online video streaming and $10 or more for streaming along with DVDs through the mail. The streaming-only price stayed constant, but Netflix now charges an additional $8 or more to get DVDs in the mail.

"The supplement you paid didn't cover the cost of DVDs by mail, so we said let customers vote by their checkbook," Ted Sarandos told the crowd at the Paley Center for Media's International Council conference in Beverly Hills Thursday. "We gave them an opportunity not to pay for streaming if they don't want it or for DVDs if they don't want it. It was a sexy headline to say there's a 60% price increase, but that was only for people who want both."

At least some people have been voting with their checkbooks, as Netflix Chief Executive Reed Hastings told investors in a letter Thursday that the company would lose 600,000 subscribers during the quarter. It had predicted it would gain about 400,000.

The news sent Netflix stock tumbling 19% as investors feared it signaled an end to Netflix's skyrocketing growth over the last few years.

Sarandos acknowledged the company had miscalculated how subscribers would react to the pricing changes but said it would be less of a problem going forward.

"Being able to precisely forecast and predict the behavior of that many people to a fairly radical change is something we'll get better at with time," he said.

He also downplayed the pending loss of Sony Pictures and Walt Disney Pictures movies when the company's distribution deal with pay cable channel Starz ends in February, noting that television programs are now more popular than movies for users of the company's streaming service.

"Television, even the season after it airs, feels more fresh than movies that have already been in theaters and on DVD," he stated.

Serialized television dramas are particularly popular on Netflix, which is why the company is investing huge amounts of money to acquire such content. It recently bought first-run reruns of "Mad Men" for between $750,000 and $900,000 per episode, the same type of price typically paid by cable networks for reruns.

Its first original program, "House of Cards," is also a serialized drama and Sarandos said the company is exploring more opportunities in the genre. He noted that it was particularly important because many serialized dramas are made by pay cable networks that consider Netflix a competitor.

"A lot of serialized shows end up on HBO, Showtime and Starz, three guys who don't necessarily want to sell to me," he said. "So we have to develop our own muscle."

-- Ben Fritz

RELATED:

Netflix shares tumble as subscribers leave after price increase

Netflix to lose Starz, its most valuable source of new movies

Netflix hikes prices for many consumers with separate pricing for DVDs, streaming

Photo: Netflix Chief Content Officer Ted Sarandos with Oprah Winfrey at the Allen & Co. Sun Valley Conference in July. Credit: Scott Olson / Getty Images

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