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Netflix launches streaming-only movie service, raises prices for DVD plans

November 22, 2010 |  9:56 am

Making a big bet on a digital future, Netflix on Monday debuted its long-anticipated Internet streaming-only service while also raising rates for its plans that include DVDs.

The fast-growing movie rental company will allow members to watch video from its library of content that can be streamed online to computers or Internet-connected televisions. Chief Executive Reed Hastings said last month that it was likely the company would launch such a plan this year.

The convenience of the all-digital option comes with a major caveat: Netflix's streaming-content library is much smaller than what is available via the mail because it's governed by a byzantine set of licensing deals. Three of the six major Hollywood studios will not offer movies through Netflix's streaming service until they are done airing on HBO -- typically at least seven years after they are released on DVD.

Nonetheless, demand for Netflix streaming has quickly grown to the point at which it now delivers more movies online than it ships through the mail. The new $7.99 plan appears designed to attract a younger and more frugal audience that watches much of its content via digital media.

At the same time, prices for existing plans will go up at a rate of $1 per month for the number of movies included in the plan. Those who rent one movie at a time, for instance, will see their charge increase to $9.99 from $8.99, while those who rent three movies at a time will get a hike to $19.99 monthly from $16.99. All DVD plans include access to online streaming.

The move could continue a trend for the company of declining monthly revenue from its 16.9 million subscribers. Wedbush Morgan analyst Michael Pachter said in a research note Monday morning that many subscribers to the one-DVD-at-a-time plan already watch most of their content online and likely will switch to the new, lower-cost option.

Netflix is betting its future on digital delivery, however, and the savings it will realize from no longer paying postage. Investors seemed to like the move; the company's stock shot up 7% to $185.63 in midday trading Monday after the announcement.

-- Ben Fritz

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