(Netflix article updated with analyst commentary and stock movement.)
NEW YORK (
is going punch-for-punch with Hulu.
The movie-rental company said on Monday that it will offer its lowest subscription yet, a $7.99 deal for its streaming services, only. The plan, which will allow subscribers to watch streaming movies and television shows, is now available to both new and old customers.
But Netflix also raised the price on its plan for unlimited movies (one DVD out at a time) and streaming videos to $9.99 from $8.99. Prices for other plans allowing for more DVDs out at a time are also going up.
The news sent shares of Netflix surging 7.7% to $186.40 in afternoon trading, but Wedbush Morgan analyst Michael Pachter cautions it might be too soon to determine the impact of the price hikes.
"On the one hand, we expect the majority of Netflix customers to remain on one of its combination plans, resulting in overall higher ARPU
average revenue per user," he wrote in a note. "On the other hand, the sharp increase in the most popular, three-DVD-out plan (an increase of $3 per month), could drive these subscribers to switch to lower-priced plans."
Pachter also expects many $8.99 subscribers will trade down to the new $7.99 streaming plan.
Susquehanna Financial analyst Marianne Wolk expects the new streaming plan will appeal most to newer Netflix subscribers that joined via digital device partners like PlayStation 3, XBox 360, Nintendo Wii and Apple's iPad. Since current subscribers can downgrade immediately, she expects this move could impact the fourth quarter.
The streaming service, which launched in September is Canada, is yet another statement by Netflix that it is moving from a DVD-by-mail company to a streaming service. After reporting third-quarter earnings last month, CEO Reed Hastings bluntly stated, "We are now primarily a video streaming company."
In its third-quarter, the company saw its subscriber base grow by 1.9 million, bringing its total to 16.9 million new users. This represents a 90% surge from a little over 1 million new users in the second quarter, and marks the fourth consecutive quarter Netflix gained more than 1 million new subscribers.
The company attributed record subscriber growth to the acceleration of its streaming service, as the number of users who streamed content for more than 15 minutes was 66%, up from 41% in the third quarter of 2009 and 61% in the second quarter of this year.
Still, this goal of being a streaming company comes with its own set of challenges. Last week, rival
said it is lowering its subscription price for its Hulu Plus service by $2 to $7.99 from $9.99.
That Internet video company, which is backed by
, NBC Universal,
and private-equity firm Providence Equity Partners, is also suspected to be considering an initial public offering that could raise as much as $300 million, and the company has been valued at about $2 billion.
, owner of Redbox DVD kiosks, is currently searching for a partner to enter the streaming market, and
are all vying for a piece of the business.
Pachter also doubts the ability of Netflix to continue to grow its subscriber base at the current pace for more than another year. "While the addition of a streaming-only option sounds as if it may open the door to a new class of customers, we don't think that the cost of the plan is sufficiently low to drive significant numbers of incremental customers to the service," he wrote.
--Written by Jeanine Poggi in New York.
>To contact the writer of this article, click here:
>To follow the writer on Twitter, go to
>To submit a news tip, send an email to: