Netflix Unveils Streaming-Only Subscription Plan, Price Increases

Web plan without DVDs will cost $7.99 a month; popular existing plans now $1 more expensive

NEW YORK - Netflix on Monday unveiled pricing details for a new online streaming-only subscription plan and price increases to existing unlimited plans that offer both streaming content and DVDs.

The price changes come as the company has spent more money on content, particularly in its five-year deal this year with premium TV venture Epix, and seen users spend more and more time with its streaming service.

Jessie Becker, vp marketing, in a company blog entry said Netflix is now offering a new $7.99 per month plan that lets users instantly watch unlimited TV episodes and movies streamed via a computer or TV set. "This plan does not include any DVDs," Becker highlighted.

As far as increases to current subscription plans go, Netflix said its popular unlimited plans that allow one DVD out at a time and two DVDs out at a time will see their price rise by $1 a month to $9.99 and $14.99, respectively. The three out DVD plan will now cost $19.99 a month, up from $16.99. The price hikes become effective immediately for new subscribers and in January for existing customers.

"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," Becker's blog post said. "Because of this, we are not creating any plans that are focused solely on DVDs by mail."

The U.S. streaming-only launch follows the September launch of a similar service in Canada.

AllThingsD's MediaMemo said that Netflix is trying to convince subscribers that the Web-only service is a good deal, even though it only offers about 20 percent of the company’s physical catalog and is therefore closer to the size of the catalog available on Hulu Plus, which last week also unveiled a $7.99 a month price.

Wedbush Securities analyst Michael Pachter in a note to investors said it is hard to gauge the subscriber and financial effect of the new price points. "At this time, it is difficult to determine the impact of the price increases," he wrote. "On the one hand, we expect the majority of Netflix customers to remain on one of its combination plans, resulting in overall higher average revenue per user; on the other hand, the sharp increase in the most popular three DVD out plan could drive these subscribers to switch to lower-priced plans.  We also expect many existing $8.99 plan customers to opt for the new, streaming-only plan at $7.99."

Overall, he left his revenue and profit estimates unchanged for now, predicting that any customer moves to lower-end plans will be offset by the higher price points.

"Today’s news reinforces our belief that Netflix will continue to spend heavily to add streaming content," Pachter told investors though. "As the company continues its shift towards a streaming-centric business model, we believe it will continue to upgrade its online content library, particularly given increasing competition from Hulu, Apple, Amazon and other competitors."

But Edward Williams, analyst at BMO Capital Markets, predicted that based on the new price points, "we should see accelerated subscriber growth rates" and "the average revenue per user degradation in 2011 should be less significant than we otherwise anticipated."

Oprah Winfrey announced the first half of her “2010 favorite things” on Friday, and BTIG analyst Richard Greenfield on Monday highlightedthat Netflix made the list and that Winfrey gave every person in the audience a five-year subscription to Netflix. "While it may not be shocking to see Netflix make Oprah’s list of favorite things, it is amazing to watch one of the most powerful and influential media personalities in the entire world educating consumers about streaming movies directly to their television," Greenfield said in a report. "While physical/packaged media may not be disappearing anytime soon, the concept of buying is certainly disappearing thanks to Netflix, Redbox, and video-on-demand."

Netflix shares hit a 52-week high of $187.80 in early Monday trading. As of about 10:35am EDT, the stock was up 6.8% at $184.72.