Netflix Bucks the Trend

Please don't let this be another price war, Netflix (Nasdaq: NFLX  ) . The country's leading DVD-rental-by-mail service is cutting its thriftiest subscribers a break. Its cheapest plan -- which allows members to rent two titles a month -- is being marked down by a buck, to $4.99 a month.

Blockbuster (NYSE: BBI  ) offers a similar plan at the original Netflix price point of $5.99, which includes a free monthly coupon for an in-store game of movie rental.

Slashing rates may be enough to give longtime Netflix investors nightmares. The stock surrendered 40% of its value in a single day back in October 2004, when it slashed rates.

Don't worry. It really is different this time.

The price war begun in 2004 was intended to keep Amazon.com (Nasdaq: AMZN  ) from launching a competing service domestically. It worked. Amazon abandoned the concept, returning two years later with a digital delivery service instead.

The 2004 price cut didn't shake off Netflix's nearest rival, Blockbuster -- but it did lead the debt-saddled company to slash its own rates, much to its own financial detriment.

Today, Netflix continues to grow profitably, with 5.7 million subscribers and counting. Blockbuster had a huge fourth quarter in terms of landing new members, thanks to its successful Total Access membership plan, which allows film buffs to return their discs at brick-and-mortar stores to receive free DVD rentals.

The price cut on the limited plan may help Netflix market itself as a cheap service, but it's not a price war until either company touches their most popular plans, which allow subscribers to receive unlimited monthly rentals, with up to three movies out at a time. Neither company's likely to lower the price on that plan for now. Instead, Netflix and Blockbuster have taken the more desirable route of making their flagship plans more appealing, with Blockbuster's Total Access and Netflix's new plan to let users stream movies to their computers at no extra cost.

No price cuts on the cash cow? Let's keep it that way, Netflix -- and reserve the red for your mailing envelopes.

Netflix and Amazon.com have both been recommended to Motley Fool Stock Advisor newsletter subscribers.

Longtime Fool contributor Rick Munarriz has been a Netflix subscriber -- and shareholder -- since 2002. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.