Netflix has taken a lot of heat since it announced a change to its pricing structure that will increase the combined cost of its unlimited streaming and DVD-by-mail services by as much as 60 percent beginning in September. But more changes could be on the way, if you believe Forrester analyst James McQuivey, as Netflix seeks to diversify its revenue stream with individual accounts and video-on-demand sales.
According to McQuivey, Netflix will need to add different options to its revenues streams next year, as it bumps up against a limit to the number of viewers subscribing to its services. Netflix currently has more than 24 million subscribers in the U.S., but the company’s growth is expected to slow as it reaches a limit to the number of “video enthusiasts” in its home market. McQuivey estimates Netflix subscribers here will top off at about 30-35 million, at which point the company will look to grow its average revenue per user with additional services.
Netflix could grow revenues by creating individual accounts and family plans, a move that the company has been working toward since earlier this year. In April, Netflix said in a FAQ on its investor site that it could offer new plans that would allow family members to stream from multiple devices at once, tying logins to an individual, rather than a household, account.
Netflix has been working to create individual accounts that would tie back into user’s Facebook accounts, but those reportedly won’t be available in the U.S. due to a somewhat obscure law banning the sharing of videos viewed by users. Netflix might only launch Facebook integration in international markets when it’s ready.
That said, McQuivey believes the first step in Netflix’s effort to differentiate the user experience for individual family members came with the launch of its “Just For Kids” tab. By creating a place for children, the company is acknowledging that households have different users and different viewing habits. As anyone who has a child in his or her household knows, frequent viewing of kids content throws off the recommendation algorithm that allows Netflix to surface interesting content.
Another opportunity for Netflix to diversify revenues might come from its addition of video-on-demand (VOD) rentals. While Netflix has remained committed to its subscription-based business model, McQuivey believes an on-demand rental model could not only boost revenues with one-off sales, but it could appeal to the instant gratification that viewers have when they’re browsing video titles on the service.
That could help insulate Netflix from the growth of competing services from companies like Amazon, which offers both VOD rentals and an all-you-can-eat offering. Apple’s iTunes, which to this point has been made up only of video sales and rentals, is also expected to roll out a subscription offering as well. As competition heats up, Netflix will need to give its users more reason to stick with its applications on devices and giving instant access to new titles is one way to do that.