“Saving Money” by Paying More for Netflix

In an earlier piece, I talked about how NetFlix’s move to a subscription model. Why was this subscription model so important?  It made me think of some research that I did on how people think about money about 10 years ago.

One of the big findings was that people have good and bad ways to spend money. For instance, spending money on the house and paying it off every month is a good thing. Having credit card debt every month is a bad thing. But you can get people to make credit cards bills into good payments when you show them how many airline miles they have “earned.” Notice how credit card companies use the word “earned” as opposed to “purchased.”

Getting back to NetFlix, I remember talking to a middle class couple about their finances about 10 years ago. We were in suburban Chicago and sitting on their back porch on a warm spring day. We talked about how they were saving money. They started with normal things like eating out less and spending less money on clothes. But then they said, “We have Netflix so we’re saving money that way too..”

So I asked, “Do you watch a lot of movies?” figuring that they had calculated the cost of renting from Blockbuster vs. their Netflix subscription. This was before streaming. You got one DVD at a time but you could exchange it as many times as you wanted over a month.

“No. Not really,” they said. “But having Netflix means that we don’t have to rent DVDs anymore so that saving money.”

That always stuck with me because I bet they paid a lot more for their Netflix subscription than they ever paid renting videos at Blockbuster. But to them, this was saving money.