Netflix Jacks Monthly Subscription Price by 60% ( Business Article Analysis)

Business Article

Bad news today for Netflix subscribers. The streaming and DVDs-by-mail company sent out a message to its members explaining new price changes and plans for its subscription service.

Instead of offering a combined $9.99 plan, which includes unlimited streaming and DVDs by mail (one out at-a-time), Netflix said it will split the service into two distinct plans, beginning in September. At that point, consumers can either purchase an unlimited streaming-only plan, for $7.99 per month, or an unlimited, one-out-at-a-time DVD plan for the same price. (Two-out-at-a-time will cost $11.99.)

But to receive both streaming and DVD-by-mail (one-out-at-a-time) benefits, subscribers will now have to pay $15.98 per month, or roughly $191 per year--a 60% increase from the original combined plan.

The price changes come as Netflix looks to push more of its users to streaming while not cannibalizing its DVD business. As CEO Reed Hastings has said, "By every measure, we are now primarily a streaming company that also offers DVD-by-mail." Last year, the company introduced a $7.99 streaming-only service, which many saw as a competitor to Hulu Plus. But with its new price plan, Netflix is clearly looking to either drive users to its streaming platform, or keep them solely renting DVDs--if they'd like both services, they're going to have to pay for it.

The reason is clear: The more benefits Netflix provides--online and disc content, streaming, postal delivery--the more expensive the service is to offer, especially as its usership continues to rocket.

If prices for its plans do not go up, Netflix will not be able to sustain its business model. In the past few years, the company has seen its revenue per use go significantly lower, from about $17 in 2006, to around $12 this past quarter.

Writes Netflix in a blog post:

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn't anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering.

With the price increases, what will you do with your Netflix plans, Fast Company readers? Will you upgrade to the $15.98 combined plan? Stick just with streaming-only plan? Or opt for the new $7.99 one-DVD-out-at-a-time plan?

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