Netflix Inc., America’s largest video subscription service, is hiking prices as much as 60% in a move that has sparked outrage among its customers but brought smiles to Hollywood studio executives.
The service will no longer offer a $9.99 plan that lets users watch an unlimited number of movies online and rent one DVD at a time. Instead, subscribers who want that combination will have to pay a total of $15.98 a month — $7.99 for Netflix Instant streaming and $7.99 to receive discs in the mail.
The changes take effect immediately for new customers and in September for existing ones. Tony Wible, an analyst with Janney Capital Markets, estimated that 80% of Netflix’s 22.8 million U.S. subscribers currently use a DVD/streaming combination plan and will be affected by the price hike. The company launched a $7.99 streaming-only plan late last year.
Reactions to Netflix’s biggest-ever price increase were swift and overwhelmingly negative. More than 10,000 people had responded to the news on Netflix’s Facebook page by late Tuesday, nearly all of them critical.
“A 60% hike with no added value is outrageous,” said Courtney Penly, a 28-year-old limousine company dispatcher from North Hollywood. “Unless Netflix is going to offer its entire library via streaming, then I am canceling.”
In a statement, Netflix’s chief service and operations officer, Andy Rendich, said the new prices “better reflect … the underlying costs” and represent a better value for people who want only DVDs.
A Netflix spokesman said executives would elaborate on reasons for the price change when reporting the company’s financial results July 25. But analysts pointed out that the company faces escalating costs to acquire content for its digital streaming library.
Consumers will end up paying more money or, if they switch to a cheaper plan, accessing less content. Either way, Netflix will benefit from higher revenue or lower costs, freeing up cash for the Los Gatos, Calif., company to buy digital rights to more movies and TV shows.
Subscribers who choose the online-only option won’t have access to popular recent releases like “Harry Potter and the Deathly Hallows Part 1" or “Little Fockers.” Those who opt just for discs will need to wait two days, instead of two minutes, from the time they request a movie until they can watch it.
People who want multiple DVDs out at a time will pay $4 more for each additional disc. There are also surcharges for high-definition Blu-ray discs.
Executives at several Hollywood studios, who were not authorized to speak publicly on the subject, said Tuesday that they were pleased by Netflix’s move. The higher prices should help address concerns that the service was undervaluing studios’ content and encouraging consumers to avoid options that are more profitable for the studios, such as video-on-demand rentals and Blu-ray purchases.
Studios have already taken numerous steps to limit Netflix’s appeal. Four studios prevent the company from offering some newly released DVDs until 28 days after they go on sale in stores. Three others keep their films off the Netflix Instant streaming service until they finish airing on HBO — about seven years after their home video release.
Recently, Sony Pictures films disappeared from Netflix Instant because of a provision in the studio’s contract with pay cable channel Starz. That clause set a limit on the number of people who could access Sony movies online, a number that Netflix has exceeded. If some users switch to a DVD-only plan, that could put Netflix back under Sony’s cap and bring the studio’s films like “The Social Network” and “The Karate Kid” back to the service.
Netflix has raised its prices several times before, most recently in January, but never to such a dramatic degree. It remains to be seen what the news will mean to its bottom line. On Tuesday, Netflix’s stock, which has risen 66% this year, rose 5 cents to $291.27.
“We believe the unprecedented size of the potential increase and the lack of consistent [past] data makes it difficult to assess the net benefit or loss from the change,” analyst Wible wrote in a research note.
Eric Wold, director of research for Merriman Capital, said, “We would not be surprised if existing Netflix subscribers reevaluate their monthly subscription.” He predicted that the move could benefit the company’s largest competitor: kiosk rental company Redbox, which offers DVDs for $1 a night.
Other beneficiaries could be pay cable channels like HBO, which is competing with Netflix as the latter company gobbles up rerun rights to television shows such as AMC’s “Mad Men” and movies from independent studios like Relativity Media, maker of the March hit “Limitless.” The $15.98 price for Netflix’s one-disc-at-a-time plan with online streaming is the same monthly cost as HBO.
Rental chain Blockbuster, which was recently acquired by Dish Network, used the opportunity Tuesday to remind consumers of its recently lowered prices to rent DVDs in stores and its plans to develop a subscription streaming offering.
Netflix has made changes that provoked subscriber complaints before, with no apparent effect on its subscriber base. When it signed its first deal with a studio that included 28-day delays for new releases in early 2010, many users expressed outrage online. However, the company added 9.63 million subscribers in the last year. In March, it surpassed Comcast Corp. as the nation’s largest subscription video provider.
Nonetheless, many users on Tuesday were adamant that they wouldn’t pay a higher bill during tough economic times. Karla Hernandez, a 25-year-old music supervisor in Encino, said she didn’t find any of Netflix’s new plans compelling enough to continue with the service.
“The price increase seems really unreasonable,” she said. “Having limited options with just one plan or paying $16 for both options doesn’t seem worth it.”