Tag Archives: trending

Did Netflix not anticipate this?

Being mad at Netflix for raising their prices back to roughly what they were 4 years ago is now pushing Google+ out of the meme-cycle. At one level, this is really pretty silly. $16 / month is cheaper than any cable subscription. So thinking about it rationally, no one should be upset.

But they are, in droves.

And before dismissing the folks that are as a bunch of whiners, it’s worth understanding that our brains have some wiring for perceived fairness. This is best demonstrated with the Ultimatum game, where a researcher gives a sum of money to 2 people under the following rules. Person 1 decides how the money will be split up. Person 2 decides whether or not to take the deal. If Person 2 rejects it, neither get any money. The results are interesting.

People felt like they understood their relationship with Netflix. Service A for Price B. Everyone was happy. Netflix just changed the pricing dramatically (not in raw dollars, but in percentages, which is actually the way our brains tend to process things), but didn’t change anything about the value of the service. It’s the same reason that people hate cell phone companies and cable companies (service doesn’t get any better, but the price keeps going up), or big media companies that want you to rebuy your same content in a new format every few years. Inversely it probably explains why people are in love with our smartphones. Yes, the consistent pressure to upgrade is expensive (way more so than netflix), but the new version has lots of great new value in it. That’s a deal that we see as fair.