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Netflix Debuts Streaming-Only Option

2:15 PM -- Netflix Inc. (Nasdaq: NFLX), as expected, has launched a streaming-only subscription tier in the US that runs $7.99 per month, while bumping up the costs of tiers that include DVD rentals, which tend to cut the most deeply into the company's margins. (See Netflix Launches Streaming Only Tier.)

The 100 percent streaming option in the US follows Netflix's launch in Canada, where it doesn't offer a DVD rental option. It's also coming along as Netflix splashes more cash on new exclusive or quasi-exclusive streaming deals with studios and other content providers. (See Netflix Streams to Canada and Netflix-EPIX Deal Puts Pressure on Cable .)

Among changes to its DVD rental tiers, its two most popular tiers (1 DVD or 2 DVDs out at a time, plus streaming) jump $1 per month -- from $8.99 to $9.99 and from $13.99 to $14.99 per month, respectively. The price jumps even more for Netflix's other DVD rental tiers, whose changes amid the new streaming option are listed here.

The introduction of the pure streaming plan for the US means Netflix is "now primarily a streaming video company," company CEO Reed Hastings said, in a statement.

The move may rankle subs who still like to get DVDs since they'll be paying more, but also cause many to downgrade to streaming-only, which could cause Netflix's average revenue per subscriber to shrink.

Jefferies & Co. Inc. analyst Youssef Squali thinks the move will have a "minimal impact on churn," while yielding $75 million to $125 million in incremental revenue, given its current base of more than 17 million subscribers. [Ed. note: About one fifth of Netflix's library of 100,000 DVD titles is offered via its "Watch Instantly" streaming service.] (See Netflix's Streaming Battle.)

But the move should result in more attractive margins. JP Morgan analyst Imran Khan estimates that more than 30 percent of Netflix's revenues comes from DVD fulfillment, and that its streaming-only service, thanks in part to relatively fixed streaming costs, will offer superior margins over subscriptions that involve the costly shipping of millions of DVDs.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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