Thursday, July 14, 2011

Netflix Tests Pricing Power

Netflix Tests Pricing Power

MarketWatch Blog “The Tell” outlines the split between Netflix consumers and investors: Netflix investors cheer fee hike.

“Some analysts complain that Netflix is over-valued, with a 67% run-up this year and a share price near the $300 mark. Some believe the shares have more room, with the highest price targets currently sitting at $325.”

Speaking from the consumer side of this equation, I’m not in love with the changes to the plans, and more specifically, I hate the idea that my Watch Instantly Queue may disappear.

This new billing scheme seems to reward the heavy user (who are already subsidized by the average user) while punishing the discriminating user that may only have access to unusual titles in DVD format. Analysts point out that alternatives exist: RedBox, iTunes, Amazon Prime video… But fragmenting my media consumption to multiple vendors will eventually lead me to cut.

After all, I do not want to go to three different grocery stores to save money on different brands of cereal… I’ll just take the best overall offering and pay a bit more.

"Netflix teaches us that once you get people to pay, you can always raise the price. The music business is about maintaining price points. Huh? Have they never gotten a cable bill? It starts off small and then goes up. Few disconnect, they grumble and pay up. Yes, the increase at Netflix is substantial, I’d go up a buck or two at a time, then again, the company’s goal is to kill DVD rental by mail. Hell, why buy all the discs, establish warehouses, mail them, incurring postage, when you can stream movies without any of this at all? The music business never got comfortable with the cost savings of digital, too busy placating Wal-Mart it got caught in the past." ~Ritholz

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