Netflix Cuts Prices of Two More Rental Plans
Netflix cut monthly subscriptions for two of its most popular plans by $1 Sunday, a day ahead of a quarterly earnings report that will show whether rival Blockbuster has further dented the online DVD rental company's growth.
Shares of Netflix plunged more than 11 percent on the news.
Netflix now has cut prices on its four most popular plans this year, bringing them in line with the prices of Blockbuster By Mail plans.
The two companies are locked in a price war for the second time since Blockbuster launched its online service in 2004.
Blockbuster plans to spend $170 million this year to win subscribers for its new Total Access plan, which gives online subscribers free in-store rentals.
Netflix CEO Reed Hastings said in April that he planned to grow the company's subscriber base slowly but profitably until Blockbuster's losses on Total Access force it to raise prices.
Most Netflix plans let subscribers take out an unlimited number of DVDs, but limit the number a customer can have at home at one time.
The new Netflix prices take effect Sunday and apply to unlimited plans that were formerly $9.99 per month for one DVD at a time, and $17.99 for three DVDs at a time.
Earlier this year, Netflix cut $1 off its $5.99 plan and its $14.99 plan.
All plans allow subscribers to view a limited number of hours of TV shows and movies on their personal computers via Netflix's streaming feature, called Instant Viewing.
Netflix spokesman Steve Swasey said the company tested lower priced plans for more than a year as a way to increase business.
After spending more than $300 million to launch its online service, Blockbuster finally started dragging on Netflix's double-digit subscriber growth late last year with the introduction of Total Access, which allows subscribers to swap DVDs rented online for free store rentals.
Blockbuster By Mail, priced $1 cheaper than Total Access plans, allow subscribers to return DVDs by mail only.
The new Blockbuster plans propelled its subscriber base to more than 3 million at the end of March from 1.5 million in late 2006.
Netflix, which had 6.8 subscribers as of the end of March, is seeking to retain its dominance of the online rental market, which PriceWaterhouseCoopers has estimated will grow by double digits to 20 million subscribers and $3.4 billion by 2011.