Netflix Introduces New Plans and Announces Price Changes

Leaving aside the new plans (which are window dressing), Netflix has announced that they are breaking the streaming and DVD services apart:

[…] we are separating unlimited DVDs by mail and unlimited streaming into separate plans to better reflect the costs of each and to give our members a choice: a streaming only plan, a DVD only plan or the option to subscribe to both. With this change, we will no longer offer a plan that includes both unlimited streaming and DVDs by mail.

So for instance, our current $9.99 a month membership for unlimited streaming and unlimited DVDs will be split into 2 distinct plans:

Plan 1: Unlimited Streaming (no DVDs) for $7.99 a month
Plan 2: Unlimited DVDs, 1 out at-a-time (no streaming), for $7.99 a month.

The price for getting both of these plans will be $15.98 a month ($7.99 + $7.99). For new members, these changes are effective immediately; for existing members, the new pricing will start for charges on or after September 1, 2011.

Basically a doubling of price, which will simply accelerate the transition to streaming only, which is probably fine with Netflix.

It doesn’t look like Netflix is just trying to make more money here. They are offering unlimited streaming for $7.99/mo for the first time, and a plan with unlimited DVDs (one at a time) for $7.99. So they are making considerably more money in the lower tiers of the new plan. So the threshold for getting started is higher, but when you get out to the 5 DVDs at a time and unlimited streaming it’s only $2/mo more.

In my case, I opted to downgrade: a 1 DVD at a time plan and an unlimited streaming plan. So I will pay around $15/mo, instead of the $36/mo I might have paid for unlimited streaming and 5 DVDs out at a time, but which was $34.99/mo until this month.

Since the plans changed, I realized that I had let my DVD queue go empty several times in the past months, so I just don’t need as many DVDs as I originally did. Just one at a time for the occasional movie that is not stream-configured yet.

So I think Netflix will lose some money from people like me defecting from discs, and gain some from people signing up for unlimited streaming with a disk or two at a time.

But both the DVD-only and streaming only businesses can make money at the lower tiers, which must have been a loss leader for one or both services, before.

And by breaking out the team managing the DVDs, Netflix might be preparing to spin it out:

Jessie Becker via Netflix blog

Last November when we launched our $7.99 unlimited streaming plan, DVDs by mail was treated as a $2 add on to our unlimited streaming plan. At the time, we didn’t anticipate offering DVD only plans. Since then we have realized that there is still a very large continuing demand for DVDs both from our existing members as well as non-members. Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs. Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs by mail offering. Reflecting our confidence that DVDs by mail is a long-term business for us, we are also establishing a separate and distinct management team solely focused on DVDs by mail, led by Andy Rendich, our Chief Service and Operations Officer and an 11 year veteran of Netflix.

And the future CEO of DVDFlix?