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Netflix Ends Huge Year With Price Shift and Executive Raises

Party in Los Gatos tonight: Netflix (NFLX) is celebrating the end of a monster 2013 by giving its top executives sacks of money, ending a defensive maneuver against activist investors, and tinkering with price increases that could make the company even more money in 2014.

Netflix Chief Executive Reed Hastings—who has pinballed in recent years from business magazine cover boy to laughingstock to, well, business magazine cover boy—got a 50 percent raise. This year he led Netflix shares to a 294 percent gain, the most of any listing in the Standard & Poor’s 500-stock index. Hastings will make $3 million in salary in 2014, with $3 million in stock options.

Right behind him is Netflix Chief Content Officer Ted Sarandos, who will make nearly as much as his boss in salary: $2.8 million, plus $2 million in stock options. Sarandos is the brains behind Netflix’s strategy of creating its own premium programming, including the women’s prison series Orange Is the New Black and the political thriller House of Cards, both of which launched earlier this year to critical fanfare. Viewers seem to like them, too. Netflix says it now has more than 40 million subscribers to its streaming video service, the most ever.

Now Netflix will begin experimenting with charging different amounts for the product, based on how many screens customers want to watch its content on at the same time. The base price, $7.99 per month, permits two simultaneous viewings. A dollar less limits the service to one screen. Paying $11.99 would let four people watch on four screens under the same account. The company has stuck stubbornly to $7.99-a-month pricing ever since a disastrous 2011, when Hastings suddenly raised prices on some customers and then briefly said he would split the company in two, causing some 800,000 subscribers to leave the service.

Analysts have pointed to variable pricing, based on accounts that are shared between multiple people, as a way for Netflix to ease back into price adjustments without freaking out users. “This is an ingenious solution,” Michael Pachter, an analyst at Wedbush Securities, told Bloomberg News.

Netflix also announced that it is ending a “poison pill” provision that helps defend against takeover attempts by activist investors. The company adopted the measure in November 2012 after billionaire Carl Icahn bought a huge stake. It was intended to last until 2015. Since Netflix shares almost quadrupled this year, Hastings doesn’t need to worry about the company looking like an undervalued target.

Nick Summers covers Wall Street and finance for Bloomberg Businessweek. Twitter: @nicksummers.

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