Because the market size is currently bigger than that [[ keep reading, I am wrong ]]. Lets take 900 million people in the western world (rich like us) x $10 x 12 months ~ 100 billion for movies and tv (independent of ad revenue, etc). This is the upper bound of course, then there is the middle 2 billion people who can watch but have more limited means (no streaming, other formats, etc). So yes, $10 is a perfectly viable number. They just don't want it to be.

Still $10 a is in the order of magnitude. Some will pay zero, some will pay 20 - 30 (netflix,itunes,amazon,etc).

Why do you think 10$ for all you can eat movie watching via Netflix is sustainable, when new releases at the theater cost $7-12 PER movie? Unfortunately the industry set the price this low and now it is expected to be that cheap. Since the price is going to inevitably go up, or Netflix will just lose more content, the public is going to have to deal with the increase, or the people who don't want to pony up will just have to cancel their service.

The fact that new releases cost $lots doesn't affect the viability of Netflix's operation, any more than the fact that a new car costs $20,000 affects the viability of selling it secondhand later on for $5,000. Any costs related to property, rent etc are not relevant, and the (much larger) licensing costs of movies are arbitrary figures set by the industry. They could set them pretty much wherever they want for Netflix and still make money since their marginal cost is pretty much zero. And while they may not want to do that, the alternative to customers paying $10/month for Netflix is probably not customers paying $100/month when most people know there are other alternatives.

Netflix had to raise prices eventually, I wonder if they will have to do it again in the future to stay in business. Their licencing fees went from ~200 million in 2010 to ~2 BILLION in 2012. They must raise prices somewhere along the line. $10 a month is a hell of a deal for all you can watch movies. This is the price of 2 trips to McDonalds.

They have to charge more somewhere due to their skyrocketing license renegotiation costs the studios are charging. And they can charge this, because there is a demand for their content.

A movie at the theater and a movie in your living room are two different products.

A true comparison isn't really possible. The closest would be a premium movie channel; HBO, Showtime, Starz. Those cost more than Netflix and have a much smaller selection of titles.

How about that only one or two On Demand movies from Comcast cost as much as a month of all you can watch Netflix?