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Which Netflix plan is best?

Unless you're watching most of your movies via streaming, you need to decide which plan provides the most value.

By Karen Datko Jul 9, 2010 10:29AM

This post comes from Michael at partner blog The Dough Roller.

 

Netflix runs an online DVD rental business with nearly 14 million subscribers. While Blockbuster struggles to avoid bankruptcy, Netflix continues to develop new streaming technology and to regularly produce higher than expected earnings. 

 

One thing that hasn't changed in a while, though, is the cost to be a Netflix member. 

 

The economics of Netflix is quite simple. The more DVDs you  rent via mail at a time, the more money it's going to cost you. Each additional DVD added to your plan costs between $3 and $7, and the most complicated thing about Netflix is figuring out which plan is best for you. That said, I want to know which plan presents the best value regardless of how often you watch DVDs.

 

First, we need a price list of current Netflix plans:

  • One DVD out at a time: $8.99.
  • Two DVDs out at a time: $13.99.
  • Three DVDs out at a time: $16.99.
  • Four DVDs out at a time: $23.99.
  • Five DVDs out at a time: $29.99.
  • Six DVDs out at a time: $35.99.
  • Seven DVDs out at a time: $41.99.
  • Eight DVDs out at a time: $47.99.

Now that we know how much these plans cost, what's the next step? Let's play out a scenario that maximizes the value of each plan. 

For example, let's say Johnny Drama watches a movie every night he can and decides to return the DVDs together (a very important point). For instance, if three Netflix movies arrive on a Tuesday, Johnny watches a movie that night, Wednesday and Thursday and has all DVDs in the mail Friday morning.

 

Assuming two business days, including Saturdays, mailing time for each set of DVDs -- if Johnny lives relatively close to a sorting facility -- how many movies could Mr. Drama watch in a 31-day month with each of the above plans?

 

Watching one Netflix DVD a day (packaged return):
 

Plan DVDs

Cost of plan

Number of DVDs that can be rented

Cost per DVD

1

$8.99

9

$1.00

2

$13.99

14

$1.00

3

$16.99

17

$1.00

4

$23.99

20

$1.20

5

$29.99

23

$1.30

6

$35.99

24

$1.50

7

$41.99

24

$1.75

8

$47.99

24

$2.00

 

In the above scenario, the plans with the best value are one, two and three DVDs at a time. Any more than that and you end up paying more than $1 per DVD rental.

Now, let's play out the exact same scenario except for the fact that Johnny returns DVDs right after he watches them. So, if he has the three-DVD plan, he'll receive all of his movies on Tuesday, watch one Tuesday night, return it Wednesday morning, watch one Wednesday night, return it Thursday morning, etc. Same plan, but returns DVDs individually. What does the value of the plan become?

 

Watching one DVD a day (separate return):
 

Plan DVDs

Cost of plan

Number of DVDs that can be rented

Cost per DVD

1

$8.99

9

$1.00

2

$13.99

18

$0.78

3

$16.99

27

$0.63

4

$23.99

31

$0.77

5

$29.99

31

$0.97

6

$35.99

31

$1.16

7

$41.99

31

$1.35

8

$47.99

31

$1.55

 

Looks like the three-DVD plan comes out on top this time and the two-DVD and four-DVD plans roughly tie for second place. Two scenarios, and the three-DVD plan comes out on top both times. So far, this plan is looking like the one to beat.

 

Kicking things up a notch, let's say Johnny Drama just can't get enough of movies and decides he can watch two movies each and every night. Having four hours of free time on his hands probably means Johnny doesn't have much of a personal live, but to each his own. Going back to the very first set of rules, let's assume Johnny watches the movies as soon as possible and returns them when all DVDs have been watched. Will the three-DVD plan come out on top for a third time?

 

Watching two DVDs a day (packaged return):
 

Plan DVDs

Cost of plan

Number of DVDs that can be rented

Cost per DVD

1

$8.99

9

$1.00

2

$13.99

18

$0.78

3

$16.99

21

$0.81

4

$23.99

28

$0.86

5

$29.99

30

$1.00

6

$35.99

36

$1.00

7

$41.99

35

$1.20

8

$47.99

40

$1.20

 

At $0.78 per DVD, the two-DVD plan comes out on top this time, with the three-DVD plan a very close second place. If you look back at previous performance, the two-DVD plan has been the cheapest or second cheapest option each time. So going into the last scenario, it would appear the two-DVD and three-DVD plans are the best bang for your buck.

 

Finally, Johnny Drama will watch two DVDs per night and return them as fast as possible (individually).

 

Watching two DVDs a day (separate return):
 

Plan DVDs

Cost of plan

Number of DVDs that can be rented

Cost per DVD

1

$8.99

9

$1.00

2

$13.99

18

$0.78

3

$16.99

27

$0.63

4

$23.99

36

$0.67

5

$29.99

45

$0.67

6

$35.99

54

$0.67

7

$41.99

54

$0.78

8

$47.99

54

$0.88

 

What does all of this mathematical madness mean? Looking at all of these plans on a consistent movie-watching basis, the three-DVD plan is the best value. It ranks first in three scenarios and a very close second in the other, so if you're an avid movie watcher and on the fence about which plan to choose, the $16.99-a-month, three-DVD plan is the one for you.

 

With that said, we can also make some other inferences about what you see above. 

  • First, if you can't watch at least one DVD a night, then the only plan for you is one DVD at a time. Any other plan will simply cost you more than the value you will receive. 
  • Second, any plan greater than three DVDs at a time is not worth it unless you can watch at least three movies a day. Anyone who has the time to watch three movies a day consistently probably shouldn't be spending $30 a month on home movie rentals. (Or can afford to spend A LOT more than $30). 
  • Finally, no matter which plan you choose, try to pinpoint your rhythm of DVD renting early on so you can change your Netflix plan to suit your needs.

More from The Dough Roller and MSN Money:

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