Netflix's $11.99 Plan Changes Everything

Netflix (NASDAQ: NFLX  ) has steadfastly clung to its $7.99-a-month streaming plan since introducing the stand-alone offering in 2010, but don't expect that to always stay that way.

In discussing last night's blowout quarter, the leading video service operator revealed that it's getting ready to roll out a new plan -- priced at $11.99 a month -- that will allow more family members to be using a service at the same time.

The current plan offers two simultaneous connections. Netflix understands that immediate families use the service to watch different shows, and it doesn't have a problem with that. If parents want to watch House of Cards on their Web-tethered TV while their child catches Wallace & Gromit on his iPad, Netflix is cool with that. However, there are times when a husband, wife, and several kids may want to watch more than just two shows at the same time.

Boom!

Here comes a new Netflix plan that doubles the maximum number of available streams at a 50% premium.

Sure, Netflix continues to insist that it's perfectly happy with its current pricing. It has dodged suggestions from studios and subscribers that it offer tiered pricing plans that would provide more timely content to video buffs willing to pay more. Once again last night it shot down an analyst making a case for a higher basic rate.

"As your library of exclusive content grows, you could argue that subs will perceive higher value in the subscription," Piper Jaffray analyst Michael Olson asked Netflix executives during yesterday's conference call. "Will you look more seriously at tweaking out pricing?"

"I think we were pretty clear in our letter about that," CEO Reed Hastings dryly responded.

The shareholder letter points out that Netflix is "very happy with membership growth at this low price point."

However, what if this $11.99 a month plan is a trial balloon? Netflix is downplaying the move. It sees just 1% of its membership base considering the deal, so we're talking about hundreds of thousands of its 36.3 million global streaming subscribers. Then again, this is how things start.

Before last year's 12% monthly rate hike, Sirius XM Radio implemented an increase in secondary receivers and rolled out a music royalty fee. Once it saw that subscribers stuck around, it didn't have a problem introducing a rate increase across the board.

Netflix isn't stupid. It obviously isn't going to hint at an increase. The stock is at a fresh 52-week high today. Why fix what clearly isn't broken?

However, when the time is right, won't Netflix just make it happen? If it's offering a new price point for a plan that allows for more simultaneous streams, isn't it just a matter of time before it offers piecemeal rentals of new releases like its competitors do or offers streaming plans at different price points that include or exclude mobile app access?

The introduction of an $11.99-a-month plan is bigger than you think. The average revenue per streaming customer is no longer capped at $7.99 a month. Netflix will resist milking more out of its viewers as long as it can, but it's really just a matter of time before the streaming menu widens.

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Read/Post Comments (17) | Recommend This Article (21)

Comments from our Foolish Readers

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  • Report this Comment On April 23, 2013, at 6:46 PM, morbiddestiny wrote:

    I would definitely pay for the upgrade. We have three kids 6,11, and 15 that like totally different things and all have netflix available systems computer, xbox360, and tablet. My husband also use the service with our computers and PS3. The children are always fighting over who gets to use the program and my husband and I usually never are able to get on till the kids go to bed. This would be great for us. I also think it would be a great idea to be able to change the netflix parental controls per system.

  • Report this Comment On April 23, 2013, at 7:56 PM, AceInMySleeve wrote:

    They almost certainly are going to wait the 3 years for their 'brand to recover' from Qwikster, but the basic 15$ for HBO vs. 8$ for Netflix fact will pretty much guarantee some form of price increase.

    Are subs really gonna freak out over something like 1$ increase every 2 years if it comes with promises that content will improve alongside it?

  • Report this Comment On April 23, 2013, at 8:32 PM, TMFGemHunter wrote:

    @AceInMySleeve: Most subscribers probably wouldn't freak out. But I don't think content will really improve much. We'll never see actual numbers, but it's pretty clear based on the qualitative comments that there is significant inflation in content prices. As a result, Netflix is going for quality over quantity, but I'm not sure that's a winning strategy. As shows/movies continue to disappear, some people will probably quit. Especially if a price increase gives them an extra excuse to do so.

    Adam

  • Report this Comment On April 23, 2013, at 9:13 PM, Burstedbladder wrote:

    I'm sure they will continue with their customer base. I have NF 3 dvds at a time plus instant streaming. I'm very pleased with the service I get from NF, and from all that i have read about Blockbuster, Redbox, and other streaming sites, Netflix rules imo.

    Kudos to NF for all the great work they have done and for all their improvements as well.

    NF = A great company.

    :)

  • Report this Comment On April 23, 2013, at 9:16 PM, 427FE wrote:

    What about all of us who have 0 kids at home?

    just changing how many can view is nothing to people like us. But price is.

    If they increased what they stream by a lot I would stay.

    Frankly I've been with them less than a year but already tired of the small stale offering, so I'm looking at a new streaming company I ran across.

  • Report this Comment On April 23, 2013, at 9:49 PM, AceInMySleeve wrote:

    TMFGemHunter,

    The content inflation argument has very little actual evidence. Prices are set by a market with a variety of buyers and sellers and does not simply increase because Netflix has a more efficient business model. Consider that if Netflix walks away from the table, which they frequently do, the content has to find a second bidder, so content price is set by the market of all buyers.

    I do suspect there are some anomalies. Starz likely bid a fortune for Sony having just lost Disney. Netflix has increased overall demand for the time being, and thus prices most likely, however this isn't a story that has long-term legs. Old TV channels will eventually shrink and overall demand will stabilize.

    At any rate, if Netflix raises prices by 1$ and spends 50 cents more on content, then presumably the content improves compared to not doing so. And Netflix is market leading in how much they spend per dollar price on content, so if you leave, then you're plausibly going to a competitor that gives you less for that 1$.

  • Report this Comment On April 23, 2013, at 9:55 PM, AceInMySleeve wrote:

    I do find it a plausible alternative that Netflix sticks with 8$ for quite a long time, and increases profit by reducing the percentage spent on content (along with dilution of other costs). If it leads to a similar amount of revenue (i.e. elastic demand), Netflix would vastly prefer more subs over higher price points.

  • Report this Comment On April 23, 2013, at 10:37 PM, truediddy22 wrote:

    OK its going up. I hope they put more movies on here like updating the movies weekly... they dont have half of the movies u want to see. u got to go to the REDBOX just to get updated movies

  • Report this Comment On April 23, 2013, at 10:50 PM, turmoil1020 wrote:

    i will cancel and just use amazon and hulu.8 bucks is enough for what they have.5 bucks would be even better

  • Report this Comment On April 23, 2013, at 10:53 PM, turmoil1020 wrote:

    tv should be free..their revenue should be ad based only

  • Report this Comment On April 23, 2013, at 10:58 PM, turmoil1020 wrote:

    dropped hbo when it went to 18 dollars....had it for boxing but u can find a free stream if u look

  • Report this Comment On April 23, 2013, at 11:08 PM, speechisntfree wrote:

    I've been using Netflix from the beginning as a 3 DVD at a timer..... there is no company better at what they do..... I've had steaming a few months but quite honestly..... there are only 24 hours in a day and how much time can one person spend watching movies and tv programs?.....

    I have a couple thoughts..... first..... I'm concerned that anything that promotes an increase in Netflix streaming..... or any company or network who offers streaming..... is going to negatively impact bandwidth from the cable and isp providers.....

    whether or not they'll admit it..... it has to cause a slowdown for the same reasons that rush hour is bumper to bumper..... this in turn is going to cause those cable guys to do more of what some of them are doing already..... charging for levels of bandwidth usage..... and it won't take long for them to up everyones' rates in general..... so the money you save by using Netflix..... will end up going somewhere else..... and maybe even be more when higher Netflix rates are factored in the universe number.....

    and second..... the current share price of Netflix is nowhere near justified by any stretch of a stretch of the imagination..... and when Carl Icahn decides he's going to dump his 10% share and take profits..... this time Netflix will be done and gone.

  • Report this Comment On April 24, 2013, at 1:37 AM, greybuscat wrote:

    I have three devices that can use it, with four users in my household, and I didn't even realize you could only use two at once.

    Hasn't even come up yet.

    If this makes them more money, I have no problem with it.

    Of course, I didn't tear my hair out when they raised their prices the first time. It's still an insanely good value, especially if you're the kind of person that can watch almost anything at least once.

  • Report this Comment On April 24, 2013, at 9:39 AM, mkat33 wrote:

    Stream more than two shows at the same time? It's hard enough finding one show to stream with Netflix's limited streaming content.

  • Report this Comment On April 24, 2013, at 1:35 PM, laukik wrote:

    I don't like sitting in a movie theater, so the $ 8.00 membership fee is a good bargain. And until I've seen all the movies that Netflix offers and that I am interested in, I will retain my membership. After that...who knows...

  • Report this Comment On April 24, 2013, at 2:39 PM, yoyoyodude wrote:

    if every single one of their subs pays the $11.99 price netflix will have made $4,352,370,000 in one month. i dont know how much it costs to keep the videos on netflix...but if they can get that much money in one month....what have i been doing with my life???

  • Report this Comment On April 25, 2013, at 9:48 PM, lefty2g wrote:

    COMPANIES raise prices because they can. Yes they have increases in operation just as others do and it will be passed on to us. IF you don't like it you can drop out. If too many drop out they will not raise prices too much as they do not want "drop outs".

    Some profit is better than NO PROFIT. Remember...Ghey are in business to make a profit. If they thought they could make more in peanuts they would switch in a heart beat.

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