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Netflix is market testing new pricing tiers. The new, reduced pricing structure accounts for the number of simultaneous streams. Netflix stock was down slightly on the news, raising concerns over an increasingly competitive streaming video landscape. The stock ended up recovering, closing at 0.08% over its opening price.
The New Pricing Tiers
Currently, Netflix users can view two simultaneous streams with the basic streaming subscription, priced at $7.99 a month. This allows families and friends to share one Netflix subscription. This practice is encouraged by Netflix, as they allow users to create multiple profiles for one account. Netflix even offers four simultaneous streams for $11.99.
The new pricing structure would reduce the cost for many people. It would offer one stream for $6.99 a month and three simultaneous streams for $9.99. It’s unclear whether the new pricing structure would replace the $7.99 and $11.99 options for 2 and 4 streams, respectively.
The new pricing is currently being market tested in a few regions. It may only be rolled out to certain locations.
Netflix has to be careful about pricing, as the last major change to their subscription price caused their stock to plummet. Netflix stock has more than recuperated and CEO Reed Hastings is getting a 50 percent raise in 2014.
Why is Netflix Stock Flat?
The market moves in mysterious ways. While rumors of the new pricing tiers have not caused the stock to plummet, Netflix did lose some steam on an otherwise positive day for the market. The stock did end up recovering, but the momentum indicates that the new pricing tiers may have spooked a few investors.
One would think that a more affordable and competitive Netflix would increase investor confidence. However, it demonstrates concern over the competitive landscape. Netflix is now competing with Amazon and Redbox in what’s becoming an increasingly crowded video streaming market. There are other players, such as Hulu and Crackle, however, their offerings are more complimentary to Netflix, as opposed to competitive. There’s also the possibility that Apple could reinvent television as we know it, perhaps offering some streaming service of their own to supplement a la carte iTunes purchases.
With Netflix stock at an all time high, some investors are taking their money and running. While Netflix is poised to dominate streaming video, uncertainty can spook some investors. News of the pricing tiers had limited effect on Netflix stock, unlike the 2011 dive caused by the introduction of new pricing tiers.
If anything, it seems Netflix has learned its lesson. They’re trying to build revenues by growing membership. They will likely need to increase prices some time in the future, however, radical price changes are unlikely. This is good for both stock holders and subscribers.
The Future of Netflix?
The future is uncertain. Amazon is the 700 pound gorilla. They’re very good at selling products and services at a loss to dominate markets. People are familiar with the Apple e-books pricing scandal. What many don’t know is that Steve Jobs was trying to stop Amazon from dumping e-books at a loss. Kindles are similarly priced below cost. (continue…)