Friday, September 21, 2012

Netflix moves from Pure Bundling to No Bundling

The Wall Street Journal reported last year that Netflix moved from pure bundling (both DVD and on-line video services) to a no bundling or uniform pricing strategy where customers have to pay for each service separately.  Notice that Netflix expects a decline in the number of customers (due to the overall increase in price) but that revenue and profit are not expected to be much different.  Given the the 60% increase in price - even if the firm looses 1 million customers, the increase in price can offset this decline in sales.  Notice most of the sales declines are in the DVD side - which I expect to have a higher marginal cost than on-line video services.

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