The DVD format is starting to show its age, so Netflix (NASDAQ:NFLX) is moving on up to fancier formats. But a better picture ain't free no more -- and it's getting more expensive.
The movie-rental pioneer just told its 700,000 Blu-ray fans that the fees they pay will go up soon. On April 27, the current flat fee of $1 per month for access to Blu-ray titles becomes a sliding scale. The cheapest one-disc plan keeps the $1 Blu-ray premium, while the priciest eight-disc option tacks on $9 for that privilege.
Blu-ray movies typically cost about 30% more than the same content packaged on a plain old DVD, so it makes sense for Netflix to try covering its costs a little bit. A few subscribers may opt out of the new charges, but I suspect that most of 'em will stick around.
You might remember a hue and cry about the original $1 fee and the low availability of those pricey titles. But Netflix keeps growing its Blu-ray subscriber base regardless, so a lot of those customers might not be too price-sensitive. And there are other ways to cover that extra expense that would actually benefit Netflix overall: The seven-disc plan plus $1 Blu-ray surcharge comes out to $42.99 today. After the price change if you drop down to six movies out at a time plus the $7 Blu-ray charge, the price stays the same. And you can get some fresh air where that seventh movie would have shown up. Sheesh. Netflix likes the lower-priced, fewer-disc plans because you get a volume discount on the heftier alternatives.
In the grand scheme of things, I see Sony's (NYSE:SNE) Blu-ray format as a stopgap between DVDs and online streaming. Since many Blu-ray players happen to include networking capabilities, they may end up playing more online video streams than plastic discs before long.
You can tell by the name that Netflix always wanted to be a purely online service, and that day is approaching. The competition will be tough from other digital-media mavens such as TiVo (NASDAQ:TIVO), Apple (NASDAQ:AAPL), and Amazon.com (NASDAQ:AMZN) -- and perhaps Blockbuster (NYSE:BBI) can carve out a little niche somewhere, too. But I see Netflix building an early lead, and promoting the use of Blu-ray players will play right into its online ambitions.
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