Netflix Boosts Pricing with Start of U.S. Streaming-Only Service
Netflix raised the prices of most of its subscription plans as it introduced Monday a streaming-only subscription option in the U.S. The new plan, which allows members to instantly view an unlimited number of movies and TV show episodes on their TVs and computers, costs $7.99 a month. The price changes took effect Monday for new customers and will start in January for current subscribers, Netflix said.
The $7.99 charge “reflects no DVD shipping costs,” Jessie Becker, Netflix vice president of marketing, said on the company blog. That’s $1 less than the least expensive monthly plan that has been available, for unlimited streaming and renting one DVD at a time. The price of that plan was increased to $9.99 from $8.99, and the prices of all other plans offering unlimited DVDs and streamed content also rose. Only the entry-level $4.99 plan to rent up to two DVDs a month, one at a time, remained the same.
The prices of unlimited monthly plans allowing three to eight DVD rentals at a time rose the most, $3-$8 extra each. The price for including Blu-ray titles isn’t rising, Netflix spokesman Steve Swasey said. A phone representative for the company told us the extra cost to get Blu-ray discs varies by the plan from $1 to $9. After imposing a $1 surcharge on Blu-ray subscriptions in September 2008, Netflix raised the charge about 20 percent on its plans across the board in early 2009 (CED April 1/09 p6).
Netflix is “now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet,” said CEO Reed Hastings. The Monday move “reflects the tremendous customer value we've injected into streaming from Netflix, our initial success with a pure streaming service in Canada” at 7.99 Canadian dollars a month (CED Sept 23 p8) and “what our U.S. members tell us they want,” he said. The company doesn’t offer DVD rentals in Canada. Instantly viewing movies and TV shows streamed over the Internet “has become the preferred way members enjoy the Netflix service,” it said. The company recently announced that this quarter, ending Dec. 31, subscribers will watch more programming over the Internet than on DVDs and the company will invest more money to license streaming content than to buy DVDs. “Not all titles on DVD are available to watch instantly,” Becker said. Only a limited number of titles available by streaming are in HD and with surround sound.
The company’s most popular unlimited plans are the ones for one or two DVDs out at a time, and the price of the two-DVDs plan rose to $14.99 from $13.99, Becker said. “The price increase will allow us to continue to offer the popular plan choice of unlimited TV episodes and movies streaming instantly along with unlimited DVDs,” he said. Netflix has no plans to offer a DVD-only plan, Becker said: “The fact is that Netflix members are already watching more TV episodes and movies streamed instantly over the Internet than on DVDs, and we expect that trend to continue. Creating the best user experience that we can around watching instantly is how we're spending the vast majority of our time and resources. Because of this, we are not creating any plans that are focused solely on DVDs by mail.”
Netflix shares rose after the announcement. They closed 7.7 percent higher at $186.35 Monday. But analysts were split on the benefits of the changes. Bank of Montreal Capital Markets analyst Edward Williams predicted “accelerated subscriber growth rates.” But Wedbush Morgan Securities analyst Michael Pachter called it “difficult to determine the impact of the price increases.” He predicted that most Netflix subscribers will “remain on one of its combination plans,” raising revenue per user. But Pachter also predicted that “the sharp increase” in the price of the popular plan offering three DVDs at a time, to $19.99 from $16.99, will lead “subscribers to switch to lower-priced plans.” He also predicted that “many existing $8.99 plan customers” will “opt for the new, streaming-only plan at $7.99.” It’s also “difficult to determine the impact of plan shifts on the company’s cost of goods sold,” Pachter said, but “we think that many of the company’s customers currently on the $8.99 plan rent few physical DVDs, and expect the majority of these customers to migrate to the $7.99 plan, costing the company some revenue without a corresponding cost saving.” He predicted that the other subscribers “will remain on the combination plan and will pay a dollar more, so it is likely that these groups will have offsetting savings and costs.” But he said it’s “simply too early to tell” for sure.
The cost of the plan for four DVDs at a time increased to $27.99 from $23.99, the five DVD plan to $34.99 from $29.99, the six DVD plan to $41.99 from $35.99, the seven DVD plan to $48.99 from $41.99 and the eight DVD plan to $55.99 from $47.99. None of these prices includes the premium to get Blu-ray discs.