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Question of the Day
SAN FRANCISCO (AP) - Netflix is preparing for the day when getting DVDs by mail is as old-fashioned as going to the video store. It’s hoping to wean people from DVDs with a cheap plan that offers movies and old TV episodes exclusively through online streaming. It will cost $8 per month, matching a recent price cut by rival Hulu.
So should you get rid of your DVD player? Maybe not yet. But it might be a good time to make sure your television can connect to the Internet.
Most analysts expect the streaming-only plan to appeal to younger subscribers, especially those who have signed up for Netflix in the past couple years as the service became available through video game consoles. To them, the new price will probably seem like a bargain: Netflix had been charging $9 per month for the lowest-priced plan that included unlimited video streaming.
At the same time, Netflix is making it more expensive to receive those familiar red envelopes in the mail. The company is trying to offset its postage expenses and bring more money to improve the quality of its Internet streaming library.
The monthly rates on Netflix’s three most popular rental plans will rise $1 to $3, depending on the plan. They will be $10, $15 and $20, depending on how many DVDs the subscriber is allowed to have out at once.
The changes announced Monday are Netflix’s latest step to ensure it doesn’t repeat the same mistakes of Blockbuster Inc., a once-ubiquitous video store chain that didn’t adapt quickly enough to technological change and went bankrupt.
Netflix CEO Reed Hastings says he always envisioned movies being piped through high-speed connections _ even back in 1999, when his company began mailing out DVD rentals requested on the Web. That expectation is why Hastings says he chose the name Netflix.
But the transition has come more quickly than Hastings had thought. When Netflix added Internet streaming as a free supplement to its DVD plans in early 2007, Hastings assured analysts DVDs would remain the primary way Netflix’s subscribers watched movies for at least the next decade.
That changed as it became possible to stream Netflix’s service through game consoles, Blu-ray players and set-top boxes that are easy to hook up to TVs. Netflix also is streaming on more mobile devices, including the iPad.
Now, Netflix says its 17 million subscribers watch more hours of Internet-streamed video each month than they do on the DVDs they get through the mail.
Even so, Netflix remains a major buyer of DVDs because most of its subscribers still want the discs. That way they can watch the latest movie releases that aren’t available for streaming.
The company doesn’t specify how many DVDs it ships out each month, but Wedbush Securities analyst Michael Pachter estimates the average Netflix subscriber still gets four to five DVDs per month. That’s down from an average of five to six a year ago.
In a way, the move to streaming mirrors what’s happening in the newspaper industry. While tens of millions still subscribe to print editions, that audience is getting older and shrinking. Younger readers get their news on computers and other digital devices.
Pachter expects DVDs to be around for at least 20 more years. Netflix itself has projected that its DVD-by-mail shipments will peak in 2012 and then progressively decline until they become infinitesimal around 2030.
Meanwhile, subscribers are expected to watch progressively more hours through the Internet. The convenience and perceived value of streaming is the main reason Netflix’s total subscribers have nearly doubled in the past two years.
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