Netflix Stock Jumps on News of Streaming Plan, Price Hike

Company raises prices on DVD option, but offers streaming-only plan for $7.99

Last Updated: November 22, 2010 @ 3:42 PM

Netflix stock jumped nearly 8 percent Monday on the company's announcement that it will raise prices on its DVD rental plans but offer a new streaming-only option for $7.99 a month.

Though the news had been expected for some time, Wall Street responded enthusiastically. Shares of Netflix ended the trading day Monday at $188.32, up nearly nine percent.

The new plan, available immediately, lets customers immediately watch episodes and movies streamed to a computer or TV. Netflix already offers streaming with its DVD plans, but the new $7.99 includes no DVDs.

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"We've evolved into a streaming service that also offers DVDs," Steve Swasey, a spokesperson for Netflix, told TheWrap. "When we go into international markets we'll be offering pure streaming, so we wanted to do the same in the United States."

The company plans to spend $700 million on postage next year, on its way to $1 billion in postage fees in the next few years. Not that streaming isn't expensive. Netflix has kept its streaming costs close to its chest, but for a recent pact to stream content from the cable channel Epix, the company is reportedly ponying up  close to $1 billion over five years.

Prices will go up $1 a month on renting one or two DVD at a time — to $9.99 and $14.99 per month, respectively. They will also climb $3 to $19.99 for the three DVD option and $4 to 27.99 on four DVDs.

Swasey said that the jump in subscription prices has more to do with the escalating costs of DVDs and less to do with the rising costs of streaming online content.

"It has more to do with the offsetting the costs of DVDs. Streaming pays for itself, because that's what's driving all the new customers and more customers means more revenue," Swasey said.

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Netflix rival Blockbuster, meanwhile, is planning its first ad campaign since 2007 to remind consumers that despite store closings and years of losses, it still exists, the Los Angeles Times reported.

Monday's upswing continued a run of good news for Netflix, which last month reported a 26 percent increase in third-quarter earnings — and nearly 2 million new subscribers.

Netflix also said that two-thirds of its subscribers stream content, up from 41 percent last year and 61 percent in the second quarter.

The company began testing the $7.99 a month streaming service in Canada in September.

Brent Lang contributed to this report.