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Netflix Bows U.S. Streaming-Only Service

22 Nov, 2010 By: Erik Gruenwedel

Netflix Inc. Nov. 22 said it is launching a streaming-only service in the United States at $7.99 per month.

The Los Gatos, Calif.-based online disc rental pioneer also said it would raise the price of its popular $8.99 monthly disc/streaming plan $1 to $9.99, effective immediately for new subscribers and beginning Jan. 1, 2011, for current members.

Netflix this past summer bowed a streaming-only service in Canada at $7.99 (Canadian).

Prices for its other monthly disc/streaming plans will increase as well.

The two-disc/streaming plan will increase from $13.99 to $14.99, while the three-discs-out-at-a-time plan increases from $16.99 to $19.99. Netflix will increase the four-out price by $4 to $27.99, the five-out plan by $5 to $34.99, the six-out plan by $6 to $41.99, the seven-out plan by $7 $48.99 and the eight-out plan by $8 for the to $55.99 per month.

The $4.99 monthly one-disc only (two discs per month limit) plan remains the same, as do the ramp up of premiums for the option of renting Blu-ray Discs ($2 extra for one-out plan, $3 for two-out, $4 for three-out, etc.).

"We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet," said Reed Hastings, Netflix co-founder and CEO. "Today's action reflects the tremendous customer value we've injected into streaming from Netflix, our initial success with a pure streaming service in Canada ... and what our U.S. members tell us they want."

Indeed, Netflix recently announced that in the current quarter, which ends Dec. 31, its members would watch more content streamed over the Web than on disc and that in the same period Netflix will invest more money to license streaming content than to acquire physical product.

"This seemed inevitable," said analyst Eric Wold with Merriman Curhan Ford in New York.

Wold believes there are significant numbers of younger, tech-savvy consumers that are not interested in a DVD plan and would be much more likely to choose a streaming-only option considering they may not even own a DVD player and access most of their content via portable devices such as smart phones and tablet computers.

"I believe you will see an acceleration in subscribers because of this and, if successful like Canada seems to be, then Netflix would be able to expand to other countries very easily," Wold said.

Netflix said current subs could switch plans now to streaming-only by visiting http://blog.netflix.com.

Yet, there also exists the danger that Netflix subscribers who primarily rented packaged media will abandon the service for alternatives such as Blockbuster By Mail.

“I think it’s a close call,” said Michael Pachter, analyst with Wedbush Securities in Los Angeles.

Pachter agreed there are a number of subscribers at the higher priced plans who are going to reconsider, which will drive the churn rate up.

“I am re-thinking the Blu-ray option because I don’t want to pay $11.99 for one BD disc at a time,” he said.

Colleague Edward Woo said Netflix believes the potential loss of disc subs is more than offset by the responding cost savings in reduced postage costs.

“Given the alternatives (no other VOD subscription provider, demise of video stores), I think most subscribers will likely grumble, but stay on,” Woo said. “As for costs, Netflix was already profitable with disc subscribers, but now it wants to be even more profitable and is willing to risk the higher revenue and possible customer loss.”

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