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Netflix Creates $7.99 Streaming-only Service Aimed at Hulu, Increases DVD Pricing

"We are now primarily a streaming company that also offers DVD-by-mail," Netflix CEO Reed Hastings recently declared. And today, the company put its money where Hastings' mouth is. 

Netflix announced Monday that it is now offering a new streaming-only $7.99 monthly plan that lets subscribers watch its expansive library of online TV and movie content—but without access to its DVDs by mail. Subscription rates are actually increasing for that service—its two most popular plans (one and two DVDs out a time) are increasing by $1 per month—suggesting the company is trying to attract more users to its streaming service.

"The fact is that Netflix members are already watching more TV episodes and movies streamed instantly over the Internet than on DVDs, and we expect that trend to continue," wrote Jessie Becker, VP of Marketing, on Netflix's blog. "Creating the best user experience that we can around watching instantly is how we’re spending the vast majority of our time and resources. Because of this, we are not creating any plans that are focused solely on DVDs by mail."

Indeed, at its most recent earnings call, Netflix said 66% of its users are streaming content online—up from 41% year-over-year—and boasted that the majority of its members would soon be watching more content streamed than on DVD. Netflix has also been aggressively expanding its online catalogue with deals with Epix and Relativity Media, and the company would love to cut some of the strains of its by-mail service, which costs an estimated $600 million annually in postage fees.

But the shift in its subscription plans also suggests a reaction to competitors Blockbuster and Hulu. The threat from behemoth (and ultimately bloated) Blockbuster kept Netflix's by-mail service cheap—both companies engaged in a pricing war until they settled on the same costs for plans (1 DVD for $8.99, 2 for $13.99, etc.). Blockbuster's recent bankruptcy gives Netflix some leg-room to increase its rates.

That leaves Netflix positioned against a new arch rival: Hulu. The streaming TV service recently dropped its subscription service to $7.99 per month—the exact same price now as Netflix's streaming-only option.

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  • Don Archer

    I'm a renter not a streamer for as long as possible. I have all the equipment I need for better-than-cineplex movie enjoyment. I don't wish to downgrade from 1080p to 720-- at best. Most movies streamed by Netflix are even less than DVD quality. Blu-Ray is a major technological achievement. We should not be going back down the scale.

    I will leave Netflix if they don't change the direction they are going with Blu-Rays. They give every indication they've stopped providing all classic Blu-Ray titles, including the newly mastered Psycho and The Sound of Music. It should be easy for home theater owners to find the disc rental company that still offers Blu-Ray restorations. It's the other one.