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Netflix to Raise Blu-ray Prices, Stock Surges

30 Mar, 2009 By: Erik Gruenwedel


Online DVD rental pioneer Netflix March 30 said it would begin charging subscribers of Blu-ray movies upwards of 24% more per month to rent the high-definition format.

The Los Gatos, Calif.-based service said the rate hikes will take effect April 27 for all Blu-ray subscribers and immediately for DVD subscribers electing to receive BD content for the first time. The company said Blu-ray titles cost 30% more than standard DVD.

The rate hikes vary by plan, with the $4.99 one-DVD-out-at-a-time (two DVDs a month) plan increasing to $5.99 per month with Blu-ray.

The unlimited one-DVD-out at-a-time plan for $8.99 would increase to $10.99. The $13.99 per month unlimited two-DVDs-out at-a-time would increase $3 to $16.99 with BD. Three-DVDs-out-at-a-time (unlimited) for $16.99 would increase $4 to $20.99. Four-DVDs-out-at-a-time (unlimited) would increase $5 to $28.99; five DVDs (unlimited) would increase $6 to $35.99; six DVDs (unlimited) increase $7 to $42.99; an additional $8 for seven DVDs (unlimited) to $49.99; and $9 for eight DVDs (unlimited) to $56.99 per month.

“We’re very bullish on Blu-ray,” said Netflix spokesperson Steve Swasey.

Netflix, which claims that 10% of its 10 million members actively rent Blu-ray content, had been charging BD users a $1 monthly surcharge. The new pricing replaces the surcharge.

The service has more 1,300 BD titles available compared to more than 100,000 DVD titles.

Michael Pachter, analyst with Wedbush Morgan Securities in Los Angeles, said he estimated the cost to Netflix for a standard DVD is about $1.20 per use, and the cost of a Blu-ray title is around $1.80. He estimated that the average Netflix user watches six movies per month, including two that are Blu-ray. 

The analyst said the incremental cost associated with the two BD titles is $1.20 ($1.80 - 1.20 = $0.60 x 2 = $1.20), which he believed Netflix had been covering.

“We don't expect this surcharge change to impact usage or membership dramatically, given that there is not really anywhere else for people to go since Blockbuster raised prices on heavy users,” Pachter said in a note.  “Thus, any revenue increase should drop to the bottom line.”

A point not lost on investors, who heralded the price hikes sending Netflix stock up nearly 6% to close at $42.03 per share.
Pachter expects Netflix to grow revenues from $24 million to $30 million annually with the BD surcharges.

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