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Netflix ramps up streaming video capabilities

LOS GATOS, Calif. — Netflix introduced a new plan Monday that, for the first time, relies solely on video streamed over the Internet rather than the DVDs that it has mailed to customers since the company was founded more than a decade ago.

The shift demonstrates how quickly consumers have transitioned from physical media players to digital entertainment that can be browsed, watched again, or discarded without ever having handled a disk.

The company has already said that its members are watching more content streamed over the Internet than on DVDs. To keep customers happy, the company said it will spend more to license streaming content this quarter than it will on buying DVDs.

“We are now primarily a streaming video company,” co-founder and CEO Reed Hastings.

And Netflix said it will also raise prices on plans that include physical DVDs.

That sent shares of Netflix up 9 percent to an all-time high Monday.

Under a plan that allows for one DVD rental at a time, along with unlimited movies and TV shows streamed over the Internet, will cost will be $9.99 per month, a $1 increase.

Current members will see the change in their monthly bill in January, while new members will see the price immediately.

The streaming-only plan will cost $7.99 a month. Netflix already has a streaming service in Canada for a monthly fee of 7.99 Canadian dollars ($7.86).

Netflix ended October with 16.9 million members in the U.S. and Canada and predicted it would gain another 2.1 million to 2.9 million customers by year’s end. That means Netflix could enter 2011 with more than 19 million subscribers, doubling the service’s size in two years.

Netflix, based in Los Gatos, Calif., is spending heavily to obtain the streaming rights to more movies and TV shows to help lure more customers and shift more of its existing subscribers away from DVDs.

In the third quarter, Netflix spent $115 million on video streaming rights, up from just $10 million at the same time last year. Spending on DVDs dropped 35 percent from a year ago to just under $30 million in the third quarter.

Shares of Netflix Inc. jumped $14.97 to $188.04 after reaching as high as $188.18.