You don’t understand prices. You don’t buy things based on anything resembling “logic.” You buy things based on, well, something else— mental “shortcuts.” And Netflix wants to hack your mental shortcuts.
One way companies use prices to trick us is to offer cheapo, inferior goods to get us hooked on a product that we’ll eventually spend more on. Time Warner Cable, for example, experimented with an “Essentials” package that offered cable without the most popular channels at a discount, expecting (and, as I’ve been told, often discovering) that customers would upgrade to full cable when they realized how much they love TV. In a way, Netflix is already doing this: In December, it introduced a $6.99 plan ($1 discount) that allows streaming to one screen only.
The more sophisticated strategy isn’t to offer two prices, but three. In Hasting’s words: “good,” “better,” and “best” price tiering. Why three? Because of the magic of the Goldilocks effect in pricing.
It reminds me of a great talk I saw some time ago about the way The Economist packages up subscriptions, as explained by Dan Ariely here.