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Netflix's $11.99 Plan Changes Everything

By Rick Munarriz - Apr 23, 2013 at 6:30PM

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The leading video service operator will soon roll out a new plan at a higher price point, offering more simultaneous streams. It could be just the beginning.

Netflix (NFLX 4.15%) 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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