They're idiots. With cheaper options now available, they decide to raise prices.
1. Lose customers
2. ?
3. Profit
What cheaper options? In addition, the content providers are demanding more money per subscriber from them. They are every bit as much to blame as Netflix, honestly. Starz wants 10x as much as their current deal alone.
Uh oh, people can stream movies and thus aren't buying DVDs. Make it harder/more expensive to stream and they'll buy DVDs instead! Um, no, I either won't watch anything like I used to, or I'll torrent it. Idiots.