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Netflix Gambles on Higher Prices

By Anders Bylund - Updated Apr 6, 2017 at 8:38PM

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This is either really stupid or very smart. We'll find out which in about three months.

Some Netflix (Nasdaq: NFLX) customers like the service for its unending flow of red DVD mailers, and others care more deeply about the online video streams. We're about to find out more about the split between these camps.

Netflix just announced a total split between its two distinct services, offering DVD-only plans for $8 and up to complement the standalone $8 all-you-can-stream product. If you want both DVDs and digital streams, you'll have to pick a DVD plan on top of the streaming deal.

For those of us who expect a little bit of everything, the way things have been working ever since online streams became a nearly free feature of every mailer plan, this amounts to a pretty drastic price increase. The basic unlimited one-DVD option plus streaming now comes out to $16, or 60% above the old $10 price.

The changes are effective immediately for new members and by Sept. 1 for existing Netflixers.

The company says that DVDs remain more popular than expected, so there's a new sense of focus on that side of the business. Mailing services have even been broken out into a new business division, perhaps reportable as a separate operation in SEC filings. I'm waiting for next week's earnings report with bated breath, if only to find out when we'll see separate numbers for DVD and streaming customers.

Three months later, we'll get the first hint of how this change really worked out. Will existing subscribers leave the service in droves, lured by suddenly more affordable offerings from Coinstar's (Nasdaq: CSTR) Redbox and DISH Network (Nasdaq: DISH)-plus-NCR (NYSE: NCR) Blockbuster boxes? Will most subscribers simply pick one offering or the other but not both kinds?

Or will many of us simply shrug at the comparatively much larger but still pretty affordable expense of another $6 a month and thus boost Netflix's profit margins something fierce? Remember that Sirius XM Radio (Nasdaq: SIRI) is widely expected to pull a move like this in 2012, and that this is often noted as a reason to buy the stock. Why would Netflix be any different?

Netflix shares gained a couple of percent after this announcement was posted on a company blog, so investors see a modest value in the new pricing plans. I'd agree, though subscribers to our Big Short newsletter may feel differently -- they've opened a bearish position on the stock. But what do you think? Tick a box in this poll, and then tell us how you really feel in the comments section below.

Fool contributor Anders Bylund owns shares of Netflix, but he holds no other position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Coinstar and Netflix as well as buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$245.69 (-1.37%) $-3.42
DISH Network Corporation Stock Quote
DISH Network Corporation
DISH
$19.47 (-3.71%) $0.75
Coinstar, LLC Stock Quote
Coinstar, LLC
OUTR
Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$6.60 (-2.51%) $0.17
NCR Corporation Stock Quote
NCR Corporation
NCR
$33.90 (1.13%) $0.38

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