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Originally published July 12, 2011 at 6:12 PM | Page modified July 12, 2011 at 10:23 PM

Netflix fee hike upsets customers getting movies via mail, online

Netflix users who like to receive both a DVD and watch movies online through the service are about to pay 60 percent more a month in subscription fees.

Los Angeles Times

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LOS ANGELES — Netflix users who like to receive both a DVD and watch movies online through the service are about to pay 60 percent more a month in subscription fees.

In a sign of the more challenging economics the company faces to acquire digital content and ship DVDs, Netflix announced Tuesday it will no longer offer combined DVD and streaming plans. Instead, its more than 22.8 million U.S. consumers will have to pay separately for each service.

Unlimited streaming will cost $7.99 per month, as will taking out one DVD at a time. The combined cost is $15.98 per month, a huge price increase for those who pay $9.99 for a combined streaming-plus-one-DVD plan.

In a blog post, Netflix positioned the price increase as a way to bolster its DVD business, which executives had previously de-emphasized.

"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," the corporate blog post said. "Creating an unlimited DVDs by mail plan (no streaming) at our lowest price ever, $7.99, does make sense and will ensure a long life for our DVDs-by-mail offering."

But the higher prices could encourage some users to abandon DVDs and use only streaming.

In either case, Netflix could end up with more money to pay for the rising costs of content for its digital service.

If some users switch to DVD-only plans, that may also help Netflix access more digital content. It recently lost films from Sony Pictures that it acquired from Starz because its subscriber total exceeded a cap established by the studio.

The price changes are effective immediately for new subscribers but take effect in September for current ones.

Consumers who want two DVDs out at a time will pay $4 more for the additional disc. There are also surcharges for access to Blu-ray discs.

Netflix isn't changing the $7.99 monthly price for an Internet streaming-only option, which the company began offering late last year.

Its willingness to risk alienating subscribers signals that it needs to bring in more money to cover rising costs.

The company's earnings would likely be squeezed if it continued to cover the overhead for buying and shipping the discs while also spending heavily to license more video for its streaming library.

In the first three months of this year, Netflix spent $192 million on streaming rights after pouring $406 million into the library last year.

Jessie Becker, Netflix's vice president of marketing, wrote Tuesday that charging just $2 more for a bundled plan "neither makes great financial sense nor satisfies people who just want DVDs."

On the flip side, Netflix customers who haven't embraced Internet streaming will get a price break. They can subscribe to a DVD-only plan for $8 per month for one DVD at a time, a 20 percent reduction from the current package that included streaming.

Investors seemed to welcome the higher prices. Netflix's stock rose 53 cents to close Tuesday at $291.27.

Netflix's market value has increased by sevenfold and created about $13 billion in shareholder wealth during the past two years largely because its total subscribers have more than doubled during the same stretch.

As of March, Netflix had 22.8 million subscribers in the U.S., about 34,000 more than the number of households subscribing to Comcast's cable-TV service.

Subscribers rankled by the latest price increase vented their outrage in comments on Netflix's blog as well as its Facebook page, where there were about 5,000 comments, mostly negative, by Tuesday afternoon.

Some of the posters were promising to leave Netflix to try out rivals such as Apple and Hulu.com, which is looking for a buyer.

Although it's preparing to deliver DVDs through the mail for many more years, Netflix sees Internet streaming as its main lure for new subscribers as Internet connections become faster and mobile devices make it easier to watch video on the go.

The company is only selling streaming packages in Canada, where it expanded last year, and in Latin America, where it will enter 43 countries by the end of this year.

Material from The Associated Press is included in this report.

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