Netflix tests limited $5 plan

UPDATE: Company continues to be criticized for 'throttling' policy

By Jennifer Netherby -- Video Business, 2/15/2006

FEB. 15 | Netflix has begun advertising pricing plans as low as $4.99 in some markets as part of a test to drive up new subscribers.

The company is testing a $4.99 plan that allows for one movie out at a time and a two-movie per month limit and a $5.99 plan that allows for one movie out and a three-movie per month limit.

The company’s current lowest subscription price is $9.99 for one-movie-out at a time and unlimited monthly rentals.

A Netflix spokesman declined to share where the new pricing plans are being offered or any other details.

In an earnings call in January, Netflix said it was testing lower price points in an attempt to drive subscriber growth. CFO Barry McCarthy said during the call that the company would permanently lower its subscription costs if it spurred growth.

Netflix closed the year with more than 4 million subscribers and expects to end 2006 with more than 5.9 million subscribers.

The company has said it believes the key to its growth is gaining market share from bricks-and-mortar video stores.

Meanwhile, the company is continuing to get flack for its “throttling” policy, which gives rental priority to light renters over heavy renters. Heavy renters have complained about throttling for the last few years, but the issue gained new steam in the last few weeks as the final hearing approaches for Netflix’s class-action settlement. Netflix changed its terms of service last January after the class-action suit was filed charging that the company didn’t deliver on unlimited rentals or one-day shipping.

Netflix’s revised its terms to warn that heavy renters might get delayed movie shipments and states, “In determining priority for shipping and inventory allocation, we give priority to those members who receive the fewest DVDs through our service.”

The company also has been criticized over its proposed settlement to the lawsuit, which provides one month of upgraded service but requires that users opt out after the month or be charged the higher subscription rate. The Federal Trade Commission and other groups are asking the court to reject the proposed terms, calling it little more than a promotional vehicle for Netflix.

A hearing is scheduled for Wednesday in San Francisco.

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