Netflix USA Launches Streaming-Only Plan, Price Increases

written by: Richard Kastelein

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Netflix is continuing to move from a mail order DVD business to an online streaming service with the official launch of its first streaming-only subscription plan in the U.S. today. The company launched its first streaming-only service in Canada in September.

The Wall Street Journal writes:

The company, which says its customers now use its streaming service more than its DVD rent-by-mail service, also announced price increases for its DVD plans that could boost its profitability.

Netflix's embrace of online streaming reflects the widespread view that DVDs are being phased out by the rise of digital film distribution - a trend that has hurt film studios, which have relied on DVD retailing as a major source of their profits. The website's latest move also could bolster the company's ability to provide a low-cost alternative to traditional cable or satellite TV subscriptions and to compete with other online video services, like Hulu LLC.

"We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet," Netflix Chief Executive Reed Hastings said.

The new plan will cost $7.99 a month, while the prices for the 1-DVD and 2-DVDs out at a time plans will increase by $1. The 3 DVDs-plan will rise from $16.99 to $19.99 per month, something Wedbush Securities analyst Michael Pachter said would likely cost the company hundreds of thousands of subscribers.

"The gain Netflix gets from people who don't want a disc at all is offset by a number of people who will quit because of higher pricing," he told Reuters.

Netflix shares, which hit another all-time high Monday at $187.80, recently rose 7% to $185.18.

Analysts from Piper remain optimistic:

We believe the changes will serve to boost near-term [calendar year 2011] ARPU higher than current consensus models, and that long term, while ARPU will continue to fall, profitability per sub will improve as the streaming only service is becoming increasingly attractive.

Hudson Square research analysts were more cautious:

Given that major studios are very likely to expect increasing rates to obtain streaming only rights, we fully expect Netflix’s content costs to rise further.

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