Just days after Hulu announced its new subscription Hulu Plus service, Netflix said Monday that it’s introducing its first streaming-only plan in the U.S., priced the same as Hulu’s offering at $7.99 a month.
Meanwhile, Netflix has increased the monthly price of its basic DVD-by-mail plan by $1 to $9.99 for one movie at a time. The two-film plan has also been bumped up by a buck to $14.99, while an eight-DVD plan runs $55.99 a month.
Plans that offered unlimited DVDs and Blu-rays by mail, as well as digital streams of titles, were raised from $20.99 to $23.99.
Pricing takes effect Jan. 2. CEO Reed Hastings has said that the company spends more than $500 million a year in postal expenses and that those costs continue to rise, so the price increases were clearly related to fulfillment expenses. Netflix has been aggressive in beefing up its digital biz this year as the company looks to wean itself eventually from its original DVD-by-mail operations. Eliminating shipping costs is expected to significantly boost the company’s profit margins.
Move to streaming only could also be seen as a competitive response to Hulu on the part of Netflix, as the service said that its more than 16 million subs watch more content streamed now than on DVD.
“We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet,” Hastings said on Monday.
Last week, Hulu lowered the price of its streaming membership by $2 to $7.99. First launched in June, Hulu Plus is now out of beta.
Netflix said the changes are occurring because “our selection of TV episodes and movies available to stream has grown dramatically and, as a result, most members want us to deliver unlimited movies and TV episodes two ways: streaming instantly over the Internet plus DVDs by mail. The price change will allow us to continue to offer the popular plan choice of unlimited TV episodes and movies streaming instantly along with unlimited DVDs.”
The company stressed, however, that not every DVD is offered digitally. This summer, Netflix made deals with Epix for streaming rights to content from Paramount, MGM and Lionsgate and with Relativity for rights in the pay TV window.
Wall Street applauded Monday’s announcement, boosting shares 9%, or $15.28, to $188.32.