Netflix Rises on Streaming-Only Plan, DVD Price Rise
Netflix Inc., the mail-order and online movie-rental service, rose 8.8 percent after introducing its first streaming-only subscription in the U.S. and raising the price of DVD plans.
Netflix advanced $15.28 to $188.32 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have more than tripled this year.
The price increase lets Netflix pass on rising postage costs and protect average revenue per customer as more subscribers choose streaming only, which is more profitable. Justin Patterson, an analyst at Morgan Keegan & Co. who has an “underperform” rating on Netflix shares, expects the company to maintain gross margins in the 38 percent to 40 percent range.
“We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet,” Chief Executive Officer Reed Hastings said today in a statement.
The streaming-only plan, priced at $7.99 a month, had been tested in the U.S. after a similar option started in Canada two months ago surpassed expectations, Los Gatos, California-based Netflix said in the statement.
The subscription price for unlimited streaming and one mail-order DVD at a time will increase to $9.99 a month from $8.99, Netflix said. The cost to have more DVDs at a time will also go up. The price change takes effect now for new customers and in January for existing customers.
Online Programming
Netflix has bolstered its online programming to tap the growing number of viewers who use Web-linked game consoles and televisions to watch movies and TV shows. The company faces more competition from premium cable networks like HBO and Showtime and other online services. Last week Hulu LLC, the website owned by three of the biggest U.S. broadcast networks, cut the price of its paid service to $7.99 a month.
The price increases should help Netflix stabilize average revenue per user as consumers switch to lower-priced plans from ones that rise with the number of DVDs customers can have at one time, according to Edward Williams, an analyst at BMO Capital Markets in New York.
“As the company acquires more streaming content, the virtuous cycle should continue -- faster subscriber growth leveraging the fixed content costs,” wrote Williams, who has a “market perform” rating on the stock.
To contact the reporters on this story: Sarah Rabil in New York at srabil@bloomberg.net Cliff Edwards in San Francisco at cedwards28@bloomberg.net
To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net
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