Netflix Announces Price Increase

Netflix will separate DVDs-by-mail and online streaming into two separate services. It will also raise the price on bundling the two services together.

MARY LOUISE KELLY, host:

Netflix has hiked its prices. The Internet video rental company has long offered a package of unlimited streaming and unlimited DVDs by mail for $9.99.

NPR's Nina Gregory has details on the new pricing.

NINA GREGORY: Netflix announced the new pricing by saying it's offering subscribers its quote, "lowest prices ever for unlimited DVDs." That's technically true - unlimited DVDs by mail, sent one-at-a-time, will now cost $7.99 a month - down from $9.99 a month. However, in the old plan, unlimited streaming of movies from the Internet was also included. Now, the company will break apart that bundle and charge for each service. So a bundled plan that used to cost $9.99 a month will now cost $15.98 a month.

So why is the company raising its rates?

Mr. DANIEL ERNST (Research Analyst, Hudson Square Research): The simple reason is because they can.

GREGORY: That's Daniel Ernst. He's an analyst at Hudson Square Research.

Mr. ERNST: They don't really have competition. They have some competition at the margin but the reality is, there is no one offering a full slate of movies and television shows that's digital and in DVD.

GREGORY: Mike Olson is an analyst at Piper-Jaffrey. He says while that's true, the desire for bigger profits is driving the price hike.

Mr. MIKE OLSON (Research Analyst, Piper-Jaffray): The bottom line is Netflix is looking to increasingly shift the subscriber base over to streaming only as quickly as possible because streaming subscribers are more profitable subscribers.

GREGORY: The new rates will go into effect for existing subscribers on September 1st, and for new subscribers, immediately.

Nina Gregory, NPR News.

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