In launching the streaming-only service, Netflix said Monday subscribers were watching more content streamed over the Internet than on DVDs delivered by mail. Analysts expect Netflix eventually to drop the rent-by-mail service for the higher-margin streaming service.
Netflix launched the latest offering two months after launching the same service in Canada, which was successful enough to convince the company to begin the service in the U.S. The price in both countries is $7.99 a month for unlimited streaming.
In announcing the streaming-only option, Netflix raised the price of its combined unlimited streaming and rent-by-mail service by $1, to $9.99 a month. For that price, subscribers have a maximum of one DVD out at one time. Plans that allow more videos to be rented at one time have also been increased by $1, to $8 a month, depending on the number of videos a person rents.
The new prices go into effect immediately for new subscribers and in January for current members.
The higher prices for rent-by-mail services is an indication that Netflix is encouraging subscribers to move to the streaming-only service, which carries much higher margins without the cost of delivering DVDs by mail. Netflix ended the third quarter with 16.9 million subscribers, and has forecast revenue in the fourth quarter of between $586 million and $598 million.
Netflix's biggest challenge in the future is likely to be in signing deals with movie studios and TV production companies for content. Such deals are expensive, and movie studios typically hold the release of new movies to the Internet for months to avoid cutting into their more profitable DVD business.
As a result, the new-movie libraries of Netflix and its rival are limited. Netflix's competitors include Hulu Plus and Coinstar's Redbox, which rents through kiosks in retail stores and plans to launch a streaming service. Amazon.com is also considering a streaming video service.
However, Netflix has been making progress in adding content to its streaming service. The company in September announced an expanded licensing deal with NBC Universal that brought for the first time shows from the studio's cable channels. Netflix has also partnered with EPIX pay TV channel in a deal that cost an estimated $1 billion, according to the Reuters news agency.
To boost its streaming service, Netflix has been signing deals with hardware vendors to make its content easily available on flat-panel TVs, Internet-connected Blu-ray players, video-game consoles and other devices other than just a PC.