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For Blu-ray rentals, Netflix now charges $20.99 per month for its basic plan, with three movies at a time. This rate is $4 more than the regular DVD plan, a 24 percent increase, and far more than its previous $1 monthly premium. However, it also reflects the higher costs of Blu-ray discs.

Currently, 10 percent of the 10 Netflix million subscribers rent Blu-ray titles—a remarkable level, especially considering that these are mostly early adopters of the technology. The price increase might not encourage mainstream users to switch, but it probably will not deter early adopters. Those who are not interesting in paying a 30 percent premium for a higher level of picture definition probably were not going to be convinced anyway.

Yet Blu-ray movie rentals have has increased to $143 million, from $30 million the previous year, and purchases have increased to $623 million from $179 million. The technology thus continues to grow, but it cannot yet offer a full range of titles. Netflix provides approximately 1,300 titles on Blu-ray, a 60 percent increase compared with last year.

Blockbuster does not charge any premium for Blu-ray movie rentals. Thus, if Blu-ray technology penetrates the mainstream, Blockbuster will enjoy a competitive advantage over Netflix. Over time, the cost of Blu-ray discs likely will decrease, so whether Netflix is making the best decision remains to be seen.

Discussion Questions:

  1. What pricing strategy is Netflix using to price its Blu-ray discs?

Nick Wingfield, “Netflix Raises Its Fees For Blu-Ray Rentals,” The Wall Street Journal, March 31, 2009;

 

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