Friday, September 16, 2011

Netflix Subscribers Abandon The Service.

I find the large exodus of customers from Netflix following its price increase to be of immense interest. I've been ranting for over the past ten years that media is actually worth very little. What has been valuable has always been the medium by which the media is transmitted. Television shows weren't valuable, television itself was.

In this day and age of nearly limitless claims on our attention, no company can safely say that their media is so valuable that people would seek it out. Obviously, that is not the case. Take, for example, me. I pirate. I pirate just about anything that I want to see, which is very, very little. I haven't "stolen" a movie for over a year. The few movies that I have watched I've done so through my Netflix account. Piracy isn't the issue, it's something else.

We can argue about what's causing this, but that's an academic issue. People are, for whatever reason, assigning an ever-decreasing value to movies and television. But even I had no idea how far that had gone. The huge drop in subscribers confirms that it is much further along than I think anyone had initially assumed.

When you think about it, the price increase was actually rather small. As a function of percentage, yes, the increase was very large. But in absolute numbers, it was small. Most people are paying an extra eight dollars per month. If we place the average American household income at $50,000, that means that for 70% of American families, that increase is almost invisible in the grand scheme of their budget.

Yet, still, we are seeing an ever-growing customer loss. While those in the media industry would like to believe otherwise, I think that this confirms what basic economics would tell them: the value of media is approaching zero. ECON-101 will tell anyone that the cost of something will drop to the marginal cost of producing a copy of that thing. With data such as movies and music, that marginal cost is, near as makes no difference, zero.

Netflix is unfolding as a massive economics experiment, one that doesn't bode well for the traditionally modeled media companies.

No comments: