Netflix Offers Streaming-Only Subscriptions, Raises DVD Subscription Rates

by Anthony John Agnello | November 23, 2010 9:47 am

Netflix Offers Streaming-Only Subscriptions, Raises DVD Subscription Rates

Netflix (NASDAQ: NFLX[1]) announced this week that it will offer brand new subscription plans in the United States starting this January. The first new Netflix plan foregoes the traditional DVD and Blu-ray rentals of past subscription plans, letting subscribers pay $7.99 for Netflix’s online streaming video service. Separately, Netflix rental plans that allow subscribers to rent one DVD at a time are jumping from $8.99 to $9.99 in January according to USA Today, and though pricing hasn’t been revealed, multi-disc rental plans are going up in price as well.

Netflix began testing the streaming-only subscriptions last October following the announcement of the company’s third quarter earnings. It has already had success in Canada with streaming-only subscriptions, having just launched in the country last summer and foregoing disc-based rentals altogether. Given the full launch of the American streaming-only service just one month later, it’s clear that the tests were successful.

Netflix and its partners are all too aware of the increasing importance of streaming video rentals, especially subscriptions that offer unlimited access. As DVD and Blu-ray rentals and sales have declined in recent years, movie and television content producers have rushed to maintain healthy revenue streams for home video and nothing exemplified how difficult this has been than Blockbuster’s implosion. It’s telling that as Netflix shifts its business towards streaming options, it is also raising the price of its disc-based rentals.

Coinstar Inc. (NASDAQ: CSTR[2]) and its kiosk-based DVD and Blu-ray rental service Redbox has also been toying with raised prices. The company began testing higher priced rentals in a variety of markets across the country in late 2009, raising rates at Redbox kiosks in Albuquerque, N.M. charge $1.50 for the initial night, and charging $2 for the initial night at kiosks in Harrisburg, Pa. (Subsequent nights have remained at the $1 price point). Testing began again last May and the question now is, following Netflix’s increased DVD and Blu-ray rental rates, will major movie studios pressure Redbox to follow suit? The reason Redbox began testing whether or not they can break from their “$1 per day” branding in the first place was ongoing pressure from movie studios claiming that Coinstar’s low rental rates were crippling home video rental revenue and eroding DVD sales.

These are the same complaints and accusations that movie studios have been leveling against Netflix as its streaming services have spread from Web browsers onto home electronics like Sony‘s (NYSE: SNE[3]) Google (NASDAQ: GOOG[4]) TV-equipped Internet Television and Playstation 3, Microsoft‘s (NASDAQ: MSFT[5]), and Apple Inc.‘s (NASDAQ: AAPL[6]) ubiquitous iPhone and iPad. Movie studios like Universal (NYSE: GE[7]), Warner Bros. (NYSE: TWX[8]), and Fox (NYSE: NWS[9]) are maintaining exclusive agreements to offer marquee DVD releases early with Blockbuster precisely because the failing retail chain charges high prices for individual video rentals. With the new streaming only option from Netflix, however, all businesses need to accept the fact that physical home video products have scant few years left as profitable offerings. Investors who have held off on buying as Netflix has skyrocketed should consider buying in soon as we haven’t seen the stock peak just yet. Others wondering if Blockbuster might turn things around should give up the ghost.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

Endnotes:
  1. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  2. CSTR: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSTR
  3. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE
  4. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  5. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  6. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  7. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE
  8. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  9. NWS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NWS

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