Netflix has been facing a ton of consumer backlash over its recently announced price hikes, and while the company has been fairly tight lipped when it comes to explaining why it was necessary, the Associated Press claims to have the answer. According to sources close to Netflix, the company simply underestimated how long it would take to convert customers over to a streaming only future, and was stuck with a business model that simply couldn’t keep up with their long term goals.
This starts to make sense when you consider that Netflix dropped over $406 million into streaming rights for its online library last year, and these fees are expect to climb to over $1.4 billion next year. With such a massive investment required to continue building up its online catalogue, you can start to appreciate why it might want to split off the two business units when the cost of handling physical media continues to rise as well.
"Netflix is under enormous pressures from the content owners to write bigger and bigger checks," claims Arash Amel, research director for digital media at HIS Screen Digest. "It had to find the money from somewhere."
Given how reasonable these business realities appear to be, it makes us wonder if people would have been just as upset if Netflix had laid the blame on content rights holders, rather than simply spinning the price hike as a positive.