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In this recent Forbes article, Netflix gets called out for not understanding pricing in the marketplace. But the argument falls flat (at best) and makes some pretty wacky assumptions (at its worst).
A little while ago, I wrote a post that stated that Netflix’s moves were anchored in a “startup” mentality – and I’m still sticking by that piece. For the Forbes article, author Trish Gorman starts off her piece with a rather ominous declaration:
What happened was more than a minor public-relations snafu. Netflix stumbled in its pricing—a minefield for any business and the last place you want to make a misstep.
So the premise is that Netflix has committed a cardinal business sin – the “last place” they can make a mistake. But like I argued in my previous piece, this really isn’t a pricing issue. Fundamentally, Netflix restored it’s original business – at a 20% discount (from $10 / month to $8 / month) of DVD-by-mail. They’re simply splitting their operations because the two businesses are different businesses that serve the same need. But that’s not what I want to focus on (just yet).
The Forbes article tells us that Netflix should learn from New York Times, Apple, and In-N-Out. 3 iconic brands, to be certain, with rabid fans and outwardly-successful business models that Netflix could use a case-study in pricing minefield avoidance. So what’s the takeaway? Uhm…
Her first example of how the New York Times has succeeded concludes with:
…the Times earned $83 million in the second quarter of this year, down from $93 million in the second quarter of 2010. But that the company managed the enormous price hike with just a few murmurs of complaint from its readers was extraordinary.
The only thing obvious from this example is that the NY Times is losing money. Hooray for their savvy pricing decision! Ultimately, the NY Times suffers much like Netflix: Premium content is blended in with commodity content, driving the price down to some sort of mean value that is averaged across the whole array. Would I need to read the New York Times for coverage of a national news story? Of course not – they’re likely getting their information from the same wire service that AP, Reuters, and every other news outlet is using. And in the case of the East Coast earthquake this past summer, I was getting news on the quake from people I follow on Twitter about 5 minutes before the Washington Post website. Continue reading →