Netflix takes next step toward streaming-only future

Online video company announces Internet-only subscription plan for U.S., raises DVD rates

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Netflix shares (NASDAQ: NFLX) hit an all-time high on Monday after the online video company announced its first streaming-only subscription plan in the U.S. and rate hikes for plans that include DVDs by mail.

[ See also: Netflix streaming-only plan arrives with price hike ]

Shares hit $187.80 in early trading Monday before settling back by mid-afternoon to 186.36, a gain of 13.32, or 7.7 percent, over Friday's closing price of 173.04. The Los Gatos, Calif.-based company's stock is up 214 percent this year through Friday on the strength of strong revenue and earnings growth.

"We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet," Reed Hastings, Netflix co-founder and CEO, said in announcing the news.

It'll just be a matter of time before Netflix eliminates its DVD mailing business altogether and cedes that market to the Red Boxes of the world. Clearly Internet streaming is the superior delivery model, as evidenced by Netflix subscriber trends (not to mention common sense). In its third-quarter earnings report released last month, Netflix revealed that 66 percent of its 17 million subscribers streamed more than 15 minutes of a movie or television episode in Q3, up from 41 percent in the year-ago quarter and 61 percent in this year's Q2.

There's also the mailing costs. Netflix estimates it will pay the U.S. Postal Service $600 million this year, or nearly 30 percent of its annual revenue. That's a lot, and it's money that could be redirected toward streaming content rights.

The new streaming-only plan for U.S. subscribers will cost $7.99, the same as a pure streaming service already offered to the company's subscribers in Canada.

For subscribers who have plans allowing either one or two DVDs out at a time (plus unlimited instant streaming), the price goes up one dollar a month to $9.99 and $14.99, respectively. Pricing for plans allowing three or more DVDs out at a time also will rise by $3 to $8 per month. The price changes take effect immediately for new subscribers and will start in January for current Netflix members. (The Netflix blog lays out the pricing details.)

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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