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Netflix streaming-only plan & price increases
news, internet streaming, Blu-ray & DVD rentals, Netflix business modelposted 11.22.2010
Today, Netflix announced:
1. A streaming only plan for $7.99/mo.
2. Price increases on existing "unlimited" DVDs-by-mail. No change to Blu-ray Disc rental option (costs extra).
The details:
1. The instant streaming only plan does not include any DVD rentals-by-mail. This announcement is not surprising considering that this plan is identical to that offered to our Canadian neighbors on 9/22/2010. Except Canadians only pay $7.99 Canadian, which is a tad cheaper than US$7.99.
2. Price increases on existing "unlimited" DVD rentals-by-mail: The price increases are as shown in the adjacent table and take effect immediately for new subscribers, or as of the next billing cycle for existing subscribers. For the most popular 1-disc and 2-disc at-a-time plans, the increase is only $1/mo.
DVD rentals-by-mail only plan? There is not a DVD rentals-by-mail only plan, without the instant streaming option. Netflix claims that "members are already watching more TV episodes and movies streamed instantly over the internet than on DVDs, and we expect that trend to continue". We think translated it really means: (a) instant streaming marginally costs only a few pennies more (because licensing of movies is a fixed cost, and does not depend on the number of viewings), and (b) Netflix really wants to get all of its subscribers hooked on instant streaming and eventually shift away from DVD rentals altogether. The streaming business model for Netflix offers much higher margins compared to the high costs of DVD purchases, handling/sorting, and shipping costs associated with the DVD rental-by-mail program.
The Limited Plan with 1 DVD rental at-a-time (with 2 DVDs rentals per month limit) remains unchanged at $4.99/mo. This plan allows for 2 hours of streaming per month.
So what do you think? Will you go drop the DVD-by-mail rentals and go only with the instant streaming only plan? How do you feel about the price increases? To change your price plan, visit Your Account.
Our take: Netflixation believes that most consumers will stick with the price plans that they currently have, maybe except for those with the pricier 4+ DVDs at-a-time plans. Those consumers will probably opt to downgrade to fewer DVDs out at-a-time price plan to keep their monthly expeditures level. Price plans with DVD rentals are still the only way to get new releases, since the selection for DVDs is over 100,000 titles vs. 20,000 streaming titles. Most streaming movies are older releases. There are a few new release titles available for instant streaming. Given the price increase for the 1 or 2 DVDs at-a-time plan is only $1 more per month, most subscribers will probably stay with the price plans that offer DVD rentals-by-mail. Finally, the Netflix price plans still offer tremendous value. Netflix may already know that most subscribers would react to the price increase with resilience. Or should we say netflexibility. Recession or not, Americans want to be entertained. Netflix still offers a lot of bang for the buck!
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