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Netflix increases prices, risks losing customers to Redbox

Netflix has raised prices for its DVD and streaming plans plans by 60 percent. Will customers switch to Redbox?

By Lisa RichwineReuters / July 13, 2011

Netflix on Tuesday, said it is raising its prices by as much as 60 percent for millions of subscribers who want to rent DVDs by mail and watch video on the Internet.

Paul Sakuma/AP/File

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Netflix Inc hiked monthly prices for customers who use both its mail and online services, a move that could steer users toward its growing Internet streaming service.

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The company said it was raising by 60 percent the monthly price of a plan that lets subscribers watch unlimited movies and video online and get DVDs by mail.

Customers in the United States who want both services will pay $7.99 per month to rent one DVD at a time plus $7.99 for unlimited streaming, or a total of $15.98 per month, the company said on Tuesday. The previous cost of this plan was $9.99 a month.

The changes take effect immediately for new subscribers, and in September for current customers.

Netflix, the top movie rental service with 23 million subscribers, recently has focused on its streaming service for televisions and mobile devices and downplayed its business of mailing DVDs in red envelopes.

The company faces growing costs for mail shipping and building its streaming library plus competition from online players such as Amazon.com Inc and Hulu.

The company separated the pricing for mail and streaming services "to better reflect the costs of each and to give our members a choice," Netflix Vice President of Marketing Jessie Becker wrote on a company blog post.

The company also said it saw continued demand for DVDs.

"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," Becker wrote.

Merriman Capital analyst Eric Wold said he thought the company was aiming to "steer people away from DVDs" by raising the cost for the combined service.

The $6-per-month price hike could lead some customers to downsize to a streaming-only plan and perhaps visit a Coinstar Inc Redbox kiosk for an occasional DVD, said Wold, who has a "neutral" rating on Netflix shares.

Netflix said its $7.99 option for one DVD at a time was its lowest price ever for DVD-only service. The company also said it was creating a separate management team to focus solely on DVDs by mail.

Its Canadian service is streaming only, and the new Latin American service also will be streaming only.

Netflix shares gained 0.2 percent to close at $291.27 on Nasdaq.

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