How My Blu-Ray Paid Off

I took the plunge and bought a Blu-ray player Monday, on sale at $300 instead of the $600 list. Since $300 was my reservation price, I derived no consumer surplus. But its absence was made up for when I logged onto Netflix to receive Blu-ray instead of DVD disks in the mail. For only $1 extra per month, I get Blu-ray automatically in my Netflix queue. Much less than I expected to pay; and my friends tell me that until recently there was no extra charge for Blu-ray. That’s surprising, since I assume Blu-ray disks cost more to make; and I’m sure that Blu-ray owners have higher incomes and lower demand elasticities. This worries me: Is Netflix going to keep raising the Blu-ray surcharge to extract more consumer surplus from people like me? Or are there sufficient competitors for home-shown movies (on-demand TV, store rentals, and others) to prevent increased price discrimination? I certainly hope so!


swanni

No, you will simply be unable to get any Blu-ray movies from Netflix; they will sit in your queue screaming out, "Very Long Wait." Meanwhile, Netflix will keep collecting your $1 a month 'thanks for nothing' surcharge.

DanC

HD downloads are an alternative competitor, and I think better choice.

Next the Blu-ray window will be rather narrow, HD movies on SD cards or thumb drives will soon be an alternative.

Mike

I'd suggest you run a randomized test to ensure you actually gain some benefit from watching Blu-Ray discs versus regular DVDs. I am under the impression that most people cannot really tell the difference (especially with some television models and depending on the distance you sit from your television).

If you can't tell the difference, which may well be the case, you might want to switch back to the plain ol' DVD queue. Or move your couch closer to the TV!

Jay

Interesting question... Here are two points to consider: 1) There is no marginal cost difference to Netflix between Blu-Ray and DVD (the price of a stamp); and, 2) The price increase followed shortly after Netflix decided to dump HD-DVD. Perhaps Sony, et al are now enjoying the fruits of winning the format war by increasing disc prices, which Netflix is passing on in the form of higher subscription prices.

Kevin

You should have seen how angry some customers were when Netflix instated that! They were posting things like

"Great job understanding and serving your customers, Netflix, you idiots! You've lost my business, possibly permanently. .... I was on the $4 a month plan, so this was an entire 25% hike for me -- ludicrous! Boy you'll be sorry now that you lost me as a customer in your infinite foolishness..."

I actually laughed about it. Out loud.

Matt

I don't see the "pay-off" here, you are in fact out $300 + $1 per month for a technology that is going to be replaced with HD downloads/streaming.

Jeffrey

Blu-Ray is temporary anyway. Netflix is in on the HD-streaming game, though, so they should be on the scene for quite a while.

Imad Qureshi

I think it has a little more marketing involved than just pure Economics. We still have innovators using Blu-Ray. Once other groups start using Blu Ray and it becomes more common, competition will increase to grab the most share of the pie which will force prices down to same as DVD until DVD is extinct.

Mike

It costs Netflix more to purchase BD titles than DVD titles.
(And the players cost more).

Seeing that BD movies are better than DVDs (assuming you have a BD player and a HD television), why would anyone expect to rent BD movies for less money that DVD movies?

When I go to Hertz, do I expect to pay the same to rent a SUV versus a compact car? After all, the marginal cost to Hertz is the same!

Kelly

For $300 I hope you bought a Blu-Ray player that streams Netflix. My husband insisted that we did. At first, I was hesitant but now we watch more content streamed in HD than ever before and we don't have to shell out an extra dollar a month.

Matthew

@6: I am not ready to dump the physical discs just yet. I use Netflix streaming, between 8-10 hours per week, but I really miss the subtitles available on discs. We have 3 small children and it is of immeasurable benefit to see the words you couldn't quite hear because of the noise in the background from a fussy 7 month old or bickering 5&7 year olds.

I hope they find some way to stream subtitles before too long.

Ian

Swanni is only right for new releases - I get plenty of decently old blu ray discs whenever I want. but you'd find the same thing for most new DVD releases as well.

I love Netflix's BD service - it's a great way to take advantage of my PS3 without the extra cost.

Craig

I have a Blu-Ray player and a Netflix subscription and I'm very happy with it. I haven't had any issues with shipping, they don't sit in the queue as was suggested above. I'll admit there isn't much of a difference in image quality between standard DVD and Blu-Ray but the Blu-Ray player is the best DVD player I've ever owned.

I like my Blu-Ray player (PS3) so much that I've been considering buying another one for the bedroom. I want to get one with Netflix Watch Instantly built in so I can take advantage of that too. Watch Instantly gives me access to 12,000+ movies on demand for no extra charge on my Netflix subscription. We have Watch Instantly on our Tivo HD and absolutely love it.

It's a great time to be alive.

Mark

Best of luck to you, Mr. Hamermesh. I found that Netflix's HD-DVD discs were quite often scratched and didn't function properly in our HD-DVD player (at a much higher frequency than regular DVDs).

Perhaps Blu-Ray is not subject to the same issue, but I have my doubts.

Leigh Caldwell

Thanks for the thought-provoking article, Daniel. You reminded me of something I've been meaning to write for a while, and I have posted it (link below).

While price discrimination seems annoying on the face of it, it can actually be economically efficient and enable a greater amount of consumer surplus to be generated. Here's how:

http://www.knowingandmaking.com/2009/03/price-discrimination-is-economically.html: "Price discrimination is economically efficient"

Chris

Blu-Ray is not bringing any value for most movies. Or for most interesting movies anyway.
Blu-ray doesn't enhance the plot or the acting. It's great for huge screen and movies with beautiful landscapes or fast action.
Netflix doesn't charge more whether you enjoyed the movie or not. It doesn't charge more because your order movies that you are more likely to enjoy.
Blu-ray is great for netflix because the discs are supposed to be better at resisting scratch.
So why do you pay for this then ?

Christopher BUtler

I suspect BD will be the last optical media made. With disk space and bandwidth becoming cheaper, I suspect All media will soon be purely digital.

Phil

Yes, there is sufficient competition from streaming video, DVD and rental stores that Blu-Ray on Netflix cannot get much more expensive.

As for the comments that streaming HD is the same/better, I've yet to see any streaming movies that have fully uncompressed 5.1 channel or 7.1 channel sound. I derive as much utility out of uncompressed audio as I do from 1080p video.

From the beginning, Blu-Ray's biggest competition wasn't HD-DVD, it was regular DVD. It'll remain that way until streaming video gains critical-mass penetration.

AH

Regular DVDs are not expensive to manufacture and neither are blu-ray disks. Based on what I've seen, a blu-ray disk is about 50 cents more expensive to press than the equivalent DVD. It's more expensive to author, the licensing fees are a little bit more, etc. But overall, a few percent.

Ben

I always thought movies were about the stories, not the pixel counts. I'll grant that Blu Ray looks much better, but if the movie is good, it's irrelevant to me.