Netflix Tests Subscription Fees Based on Number of Users

January 3, 2014 Leave a comment

Netflix Tests Subscription Fees Based on Number of Users

By Andy Fixmer – Dec 31, 2013

Netflix Inc. (NFLX), the largest subscription streaming service, is testing new prices based on the number of people who can use an account, a move that could force customers to pay more for additional family members.Netflix is offering some new customers plans that provide access on as many as four screens, letting household members watch different shows at the same time. The monthly prices range from $6.99 to $11.99, according to an offer posted on the Los Gatos, California-based company’s website.

If successful, the pricing plans could be expanded to more customers. The test suggests Netflix, with more than 40 million subscribers, is looking for ways to curb account sharing while providing viewers with more ways to watch, just as cable TV operators rent additional set-top boxes to households.

“I am sure that they have the ability to monitor device use,” said Michael Pachter, an analyst at Wedbush Securities in Los Angeles, who has an underperform rating on the stock. “I admire their resolve to try to combat piracy. This is an ingenious solution.”

The standard Netflix streaming service costs $7.99 a month, according to the company’s website. The DVD by mail subscription starts at $7.99 for one disc at a time.

“We test all the time in an effort to come up with better options for consumers,” Jonathan Friedland, a spokesman for Netflix, said in a phone interview yesterday. “There are numerous tests at any given time.”

Netflix announced plans for the $11.99-a-month service in April, with Reed Hastings, chairman and chief executive officer, saying at the time he expected fewer than 1 percent of customers to upgrade.

Fourfold Gain

Netflix, the top-performing stock in the Standard & Poor’s 500 Index (SPX) this year, has almost quadrupled as the company beat earnings estimates and outpaced analysts’ estimates for subscriber growth. The shares rose 0.3 percent to $368.17 at the close in New York.

One possible risk for the company is that customers downgrade to the one-screen, $6.99-a-month option rather than pay for a higher level of service.

“If $6.99 enables Netflix to reach more consumers than $7.99 that’s obviously positive but it’s hard to imagine the $1 being a major price inhibitor,” said Richard Greenfield, an analyst at BTIG LLC who has a neutral rating on the stock. “If consumers who would have taken the $7.99 plan now sign up at $6.99, that all comes out of their profit margin. This is not the next pricing move investors were expecting.”

The company also said it is terminating a poison pill anti-takeover defense, effective yesterday, almost two years ahead of schedule. Investors aren’t required to take any action as a result of the change, the company said in a statement.

Market Value

The poison pill, designed to make an unfriendly takeover too expensive, was adopted in November 2012 after billionaire Carl Icahndisclosed a stake in the company. The measure was set to expire in November 2015.

The move signals Netflix’s board is less concerned about a hostile takeover after this year’s advance, which has increased the company’s market value to $21.7 billion. The board unanimously voted to adopt the poison pill days after Icahn acquired almost 10 percent of the company. He sold about half his shares Oct. 10, suggesting a gain of about $800 million.

Netflix also disclosed 2014 pay packages yesterday for its senior officers. Hastings will receive $3 million in salary and a $3 million stock-option allowance.

His 2013 pay amounted to $2 million in salary and a $2 million option allowance, according to company filings.

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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