On July 12, 2011, the management team at Netflix probably woke up feeling rather good. In fact, most mornings probably felt that way. After all, Netflix, a survivor of the dot-com boom and bust, had single-handedly disrupted the movie rental business with its mail-order DVD business and brilliant recommendation engine that kept consumers coming back.
Things were particularly looking up on that summer day. The company’s stock was trading at an all-time high, just under $300 a share, and in the week before that its streaming video service was rolled out to 43 countries, including Mexico and other markets in Central and South America and the Caribbean. The service was already an increasingly popular complement to its legacy DVD mailing business in the United States and Canada. Streaming video, in fact, was so popular and so important to Netflix’s future that the company had been rethinking its organizational structure and consumer offerings, including its pricing strategy, to gear up for the digital future. The new offering would be announced that day.
A post on the company blog written by marketing executive Jessie Becker announced that Netflix was doing away with its current pricing plan, which gave customers unlimited streaming and unlimited DVDs for just $9.99 a month. In its place would be two different plans, one that offered unlimited streaming for $7.99 a month and one that offered unlimited DVDs for the same price. What once cost about $10 would now be nearly ...