Netflix Coaxes Users to Catch the Streaming-Only Wave

Netflix is favoring the trend toward streaming rental videos by introducing a streaming-only plan and raising its prices for discs delivered by mail. The company has launched a monthly subscription plan for streaming-only at US$7.99.

The cost for a combo of streaming-video plus mail delivery will increase a dollar to $9.99 per month for the one-disc-at a-time plan. For two discs at a time, the plan will rise from $9.99 to $14.99. For three discs, it will go from $16.99 to $19.99, and for four, it will go from $23.99 to $27.99.

The price changes go into effect right away for new subscribers. For existing customers, prices will change in January.

More People Are Streaming

Netflix has watched its customer base shift more toward streaming, so the company tested a streaming-only plan in Canada in September.

“The time was right for Netflix to offer a streaming-only option,” Steve Swasey. VP for communications at Netflix, told the E-Commerce Times. “We launched a Netflix streaming-only service in Canada for $7.99, and when we did, a lot of folks in the U.S. said, ‘What about us?’ We see more and more people using more and more streaming, so we saw the time was right.”

Netflix has watched its streaming use increase as it connected to more and more Internet-enabled devices.

“You see more and more Internet-connected TVs on the market. More devices are connected to the Internet — all the game consoles, the Apples devices such as iPad and iPhone — even disc players. They’re all available with Internet connections,” said Swasey. “Netflix streaming is available on more than 200 devices now. Streaming is getting easier and more ubiquitous. Pretty soon, all the TVs sold will have Internet connectivity, and Netflix will be available on all of them.”

Mail Is Costly

The Netflix price change matches plans against expenses more directly. The lower price for streaming-only is logical given the low cost of streaming. The increased price of mail delivery plans offsets some of the cost of delivery and retrieval.

“It costs almost a dollar when we send a DVD. We will pay the U.S. Postal service more than $500 million this year,” said Swasey. “Streaming only costs pennies. Content is most of the cost for streaming. The infrastructure to support mailing DVDs includes machines, labor and trucks.”

Riding the Wave

By creating a streaming-only plan, Netflix is responding to a growing trend.

“Netflix wants to ride the wave of people who want streaming, whether its music or DVD,” Azita Arvani, principal of the Arvani Group, told the E-Commerce Times. “They want to encourage the wave by lowering the price for streaming-only. With the streaming option, it’s easier for customers to use different devices — cellphones, Internet-enabled TVs or computers. The new pricing makes it easer than if you rent a DVD.”

The move to a streaming-only plan may also have some impact on content providers.

“Netflix is encouraging more users to stream, and that will encourage the content providers to be more willing to open up their content portfolio to streaming,” said Arvani. “Not all content is available for streaming. Studios will consider streaming more strongly now. There is more chance they’ll see that their customers want the streaming option.”

The Netflix move is also a response to the growing number of ways viewers can receive streamed video. “The Internet is getting connected to the TV. More and more TVs will connect to the Internet, either directly or through boxes,” said Arvani. “More people want to watch streaming video on their TVs, and this move by Netflix is further encouragement for people to get the box or upgrade to Internet-enabled TV.”