75% of Netflix’s New Subscribers in Q2 2011 Chose a Streaming-only Plan

Wow, the title says it all, right? If you were wondering why Netflix decided to split streaming access as its own product, now you know why (in part). According to Netflix’s Q2 investor letter [PDF], customers have really taken to streaming movies and TV shows over waiting for DVDs by mail. In fact, Netflix states their DVD business in the U.S. has “likely peaked” and interest in their hybrid DVD with streaming plans has dropped from previous quarter. If it wasn’t clear to all of you already, streaming for Netflix is no longer a “perk.” It’s the company’s future here in the U.S. and across the globe. Subscribers opting for the new streaming service on its own or as part of a DVD by mail plan will only help expand the offering with new and re-licensed content from movie studios, broadcast, and cable networks. The graphic above shows how large a portion streaming is to Netflix’s total business (Q3 2011 estimate).

As for the price increases, Netflix explains…

We didn’t change the pricing for our streaming only subscribers, and those members will get to enjoy more and better streaming content going forward. Subscribers who only want DVDs from us are happy with the introduction of DVD only plans, because they can pay $7.99 instead of $9.99, a 20% savings. It is expected and unfortunate that our DVD subscribers who also use streaming don’t like our price change, which can be as much as a 60% increase for them from $9.99 to $15.98, when it goes into effect for each subscriber upon their renewal date in September. Some subscribers will cancel Netflix or downgrade their Netflix plans. We expect most to stay with us because each of our $7.99 plans is an incredible value. We hate making our subscribers upset with us, but we feel like we provide a fantastic service and we’re working hard to further improve the quality and range of our streaming content in Q4 and beyond.

Below is what streaming subscribers can look forward to.

During Q2, we secured great new content for streaming and expanded our existing partnerships with movie studios and broadcast and cable networks. For feature films, we reached agreements with Miramax and Revolution Studios to add several hundred movies on a rotating basis, giving our subscribers access to critically acclaimed films such as “Pulp Fiction,” “Good Will Hunting,” “Black Hawk Down,” “Across the Universe,” and “Shakespeare in Love” as well as box office favorites like “Daddy Day Care,” “Hellboy,” and “Anger Management.” We also announced a multi-year deal with Open Road Films to exclusively offer an exciting slate of first-run films to watch instantly shortly after they are released on DVD. The first films from our previously announced deal with Relativity Media have just started to flow and “The Fighter” and “Skyline” are shaping up to be big hits with our subscribers.

Netflix members love great television shows as much as they love movies, and are now spending over half of overall streaming hours enjoying a wide range of TV programming. In Q2, we added thousands of TV episodes through significant multi-year renewals with Viacom’s media networks and NBC Universal. These agreements not only add new seasons of shows that have enjoyed great success among our subscribers, but expand to new shows licensed by these companies.

In the case of NBCU, we’ve secured access to great NBC primetime hits on a prior-season basis, including “30 Rock,” “Parenthood,” and “The Office.” Complete previous seasons of cable favorites like SyFy’s “Warehouse 13,” USA’s “Psych,” and E’s “Keeping Up with the Kardashians” are also part of the deal.

With Viacom, we’ve expanded our agreement to include a wide range of programming from MTV, Nickelodeon, Comedy Central, BET and TV Land, including complete seasons of “Jersey Shore,” “SpongeBob SquarePants,” “South Park,” “Hot in Cleveland,” and “Basketball Wives.”

In a few days, every episode of “Mad Men” will become available in syndication exclusively on Netflix. Additional seasons will become available on Netflix once they complete their run on AMC. Since Mad Men is strongly serialized, we expect significant viewing of prior seasons as new viewers get hooked and seek the back story during the upcoming fifth season and beyond.

Netflix subscribers now have access to a wide range of programming from all four major U.S. broadcast networks and from nearly every major cable channel, as well as thousands of films, including those in their first subscription window, from Paramount, MGM, Disney, Lionsgate and a host of mini-major and independent studios.

In June, we told our members that Sony movies through Starz Plus would be unavailable to watch instantly from Netflix due to a contract dispute between Sony and Starz, to which we are not a party. As we said then, we are hopeful these two valued partners will resolve this issue soon. Additionally, we continue to be in discussions with Starz to renew our agreement beyond the first quarter of 2012.

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