On Thursday, Netflix announced it would be raising its monthly subscription price in Canada — from the very reasonable $9.99 per month to the very reasonable $10.99 per month.
Then chaos ensued.
“Netflix makes 12 billion dollars a year. Why are they increasing their fees? Because they are greedy. I just cancelled my Netflix account,” wrote one Mark Passario, on CBC’s online comments page related to the article on Netflix’s price increase.
“Adios, Netflix. Time to take my life back and stop binge-watching TV programs,” responded someone called Bruce Johnson.
“They must be taking lessons from Bell! Gouge customers, right boys? Time to cancel!” wrote “mo bennett”.
By noon, Netflix’s #pricehike was trending on Canadian Twitter. Mainstream media outlets blasted headlines screaming about Netflix “hiking” prices, almost as if the streaming service had doubled its prices overnight, or worse still, “hiked” them to match the price-gouging that the trifecta of cable company monopolists in this country — Bell, Rogers, Shaw — engage in.
“It’s an irrational reaction, but pricing is comparative,” says Avni Shah, an assistant professor of marketing at University of Toronto’s Rotman School of Management. Shah is an expert in the psychology of money — how pricing and payments influence consumer behaviour.
“Just a week ago, you could think oh, I got this same service for a dollar cheaper. It’s not so much the actual price as the change in price for no additional service that makes the consumer feel a lack of control,” she says.
Here’s the reality of the situation:
In Canada, Netflix charges $9.99 per month for access to hundreds of hours of content — practically any genre of television show, mini-series, documentary, movie, short-doc, animated film in the sphere of North American pop culture (with the exception of all the great content on HBO) has at one point appeared on Netflix. Not only that, you get an array of Netflix’s own productions, which are far from unwatchable.
A basic cable package on both Rogers and Bell is priced at $25 — it’s so basic, that you’re compelled to add on more channels. For premium news channels like CNN, that’s an extra $7 to your monthly bill. If you’re happy sticking to local cable news channels like CP24 and CBC News Network, that’s just an extra $4 per channel (yes, that’s right, local cable news isn’t included in the basic package).
So now you’re at $32 per month and that doesn’t include HST, or any premium movie channels, or live sports, or past seasons of your favourite TV shows, or whatever you might want to watch on demand, instead of being dictated by a set television schedule.
“Consumers don’t feel as much of a threat to their freedom if they can make the choice to add to their cable channels, even at an additional cost. Whereas with Netflix’s price increase, you feel as if they’re forcing you into it,” says Shah.
Netflix’s new rate of $10.99 is a 10 percent increase on your monthly bill. The streaming service has roughly 5.5 million subscribers in Canada — this means that a $1 price bump adds a healthy $66 million to their annual revenue, simply by doing nothing.
Shah claims that one of the reasons people chose Netflix to begin with was this fear that cable companies would just keep increasing prices. “In the net-present moment, people see Netflix behaving the same way — putting the company first, and the consumer second. So it’s that fear that drives the anger, even though it might not be rational.”
The irony, however, is that most people would actually be quite alright paying much more for a streaming service like Netflix, if they hadn’t priced themselves at $7.99 right at the beginning.
“I’m speaking hypothetically here, but if you polled a whole bunch of people and asked them what’s your willingness to pay for this kind of service, you’d probably find that most people would actually pay way more than what they are being charged right now,” says Shah.
Unfortunately, when it come to prices, people don’t behave very rationally. And Netflix know this.