Netflix raising Blu-ray rates

Last week I wrote a post about mail order alternatives to cable and satellite TV.  This post included information about Netflix services which includes the selection of television series in addition to movies. The Los Angeles Times reports that Netflix will raise Blu-ray rates effective April 27.  The subscription plan that allows 3 movies at a time will increase from $17 per month to $21 per month.

The justification listed by the company spokesperson is that this brings the premium fees for Blu-ray in alignment with other like services (in store rentals, purchases, etc.) as well as additional fees charged by Hollywood studios.

My local cable company is charging an extra $5 / month for high definition cable. So this price increase is in-line with market pricing for similar services. It seems strange that Netflix didn’t price the premium into the service at inception.I took a quick look at their 2008 annual summary to see if they were feeling effects of churn and trying to make up for lost revenue. Netflix defines churn as:

Churn: Churn is a monthly measure defined as customer cancellations in the quarter divided by the sum of beginning subscribers and gross subscriber additions, then divided by three months. Management reviews this metric to evaluate whether we are retaining our existing subscribers in accordance with our business plans.

But the annual report shows that the 2008 annual churn was at 4.2% which is in alignment with the previous two years.  Their gross margin has been slipping, so this could be a move to elevate that number. As analyzed in my earlier post, the $21 price is still a bargain if you use Netflix as a substitute for full cable services. With a single in-store rental at Blockbuster now at $5, the Netflix pricing is at 4 single rentals.

What’s your take? Do you you use Blu-ray? Is the better picture worth the price premium? Do you think this is a wise move from Netflix?