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Why Netflix Prices Are Still Cheap

NEW YORK (TheStreet) -- Netflix (NFLX) is embarking on its biggest price hike yet this week, igniting an angry backlash of irate customers and canceled subscriptions. But even with this 60% bump in its most popular subscription plan, in some respects, members are now getting more bang for their buck.

Tracking Netflix's once popular three-discs-out-at-a-time plan (see timeline above), TheStreet found membership prices actually declined 20% to $15.99 from $19.95 in 2000.

When Netflix launched its infamous subscription model -- the first of its kind -- it delighted customers searching for cheap movie rentals. The added bonus: Discs were delivered straight to their doors, eliminating trips to a store -- and late fees.

Netflix rolled out this service, then dubbed the "Marquee," in 1999, which allowed users to rent up to four DVDs at a time for $15.95 per month. A year later, the company raised the price for the same subscription by four dollars and eventually reduced the number of DVDs out to three at a time. At the time, Netflix' library boasted just 4,500 movies.

In 2004, as the dominant player in the DVD-by-mail segment, Netflix raised the price for this plan to $21.95, a 10% hike. The increase was short lived -- behemoth rivals Blockbuster and Wal-Mart (WMT) suddenly entered the fray, prompting a heated price war. Netflix quickly reduced the three-disc-at-a-time subscription to $17.99.

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