NEW YORK — Netflix is raising its prices in part because the company miscalculated how many people still want to receive DVDs by mail each month, a more expensive service to provide compared with its streamed Internet videos.
Netflix has been trying to lure subscribers away from its DVDs by offering cheaper plans that include movies and TV episodes delivered over its Internet streaming service. In November, it began offering a streaming-only plan for $8, its cheapest option at the time. Yet Netflix customers aren’t flocking to Internet video as quickly as some analysts said the company expected.
Many consumers are unwilling to give up the signature red envelopes. DVDs feature newer titles and the latest theatrical releases that aren’t available through the company’s streaming service.
So the company is adjusting its pricing to reflect the cost of its DVD business and to help bring in more money to cover growing expenses for streaming content.
Under the new plan, customers who want to rent DVDs by mail and watch video on the Internet will need to pay at least $16 per month. Netflix had been bundling both options in a single package for as low as $10 per month.
But that bundled plan “neither makes great financial sense nor satisfies people who just want DVDs,” wrote Jessie Becker, Netflix Inc.’s vice president of marketing, on a company blog Tuesday.
The price hike serves multiple purposes, analysts say. It will likely push more people into the streaming service, which will help Netflix to lower its postal expenses. The cost of shipping a DVD can be as much as 75 cents per disc, while analyst Mike Olson of Piper Jaffray estimates that it costs just 5 cents to 10 cents to deliver a movie over the Internet. At the same time, Netflix needs additional revenue to build up its streaming service.
