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Netflix wants to introduce three pricing tiers for new members

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Netflix (S NFLX) is getting ready for a new pricing structure, according to the company’s Q4 letter to shareholders (PDF) released Wednesday. In it, CEO Reed Hastings and CFO David Wells write:

“Last April we introduced a 4-concurrent stream $11.99 option to begin our evaluation of plan tiering. Since late last year, we have also been testing 1-stream and 3-stream variants, as well as SD/HD variations, at various price points. Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone’s taste.”

The duo added that existing members would get “generous grandfathering of their existing plans and prices,” and also stated that the company is in “no rush to implement such new member plans and (is) still researching the best way to proceed.”

Netflix CEO Reed Hastings

This would be the first significant pricing change since Netflix split up its DVD and streaming business in 2011, a move that was highly unpopular with existing members. The company introduced family-plan type pricing in early 2013, offering members the option to stream to two additional, or a total of four, devices at a time for an additional $4 per month.

Hastings didn’t reveal any concrete details about the company’s plans during Netflix’s Q4 earnings call Wednesday, but he said that his thinking on pricing had evolved. “We try to make our pricing as straight-forward as possible. But it’s not clear that one price fits all,” he said.

Hastings added that future pricing tiers won’t be content-specific, meaning that the company won’t offer more content to customers who pay more. Instead, it wants to figure out a kind of “good-better-best price tiering,” Hastings said, which will offer a variety of features, including possibly a varying number of simultaneous streams. The end goal was to find a three-tier offering “that feels fair,” he said.

A big question executives will eventually have to answer  is whether the new plans keep a base pricing of $8 per month for two simultaneous streams, or whether these new tiers could be used to effectively raise prices for new members who want to enjoy the same service levels as existing members. Netflix previously said that it will offer 4K streaming, something the company is about to introduce with the launch of the second season of its original drama House of Cards next month, to all members for no additional costs.

The announcement of the new pricing options came along with better-than-expected financial results for Netflix, which managed to add 2.33 million domestic subscribers as well as 1.74 million international subscribers in Q4 of 2013. A year before, the company added 2.05 million domestic subscribers and 1.81 million international subscribers. Altogether, Netflix now has 44 million subscribers worldwide, up from 33 million a year ago.

During Q4 of 2013, Netflix generated $1.175 billion in revenue, and a net income of $48 million, compared to $945 million in revenue and a net income of $8 million in Q4 of 2012.

The letter to shareholders also reiterated that Netflix plans a big expansion to Europe in 2014. Netflix hasn’t said yet where exactly it wants to go, but Germany and France are likely targets.

This post was updated at 2:24pm with comments from Netflix’s Q4 earnings call.

17 Responses to “Netflix wants to introduce three pricing tiers for new members”

  1. My ISP is always consistent at 80% of the bandwidth I purchase. My netflix issues are ALWAYS in the evening and with 3 different devices on 3 different TV setups. Same issues when I”m out and about and decide to watch a netflix stream on another friends setup.

    Netflix needs to fix this before I just drop them…

  2. Abner Germanow

    Long time Netflix streaming subscriber and Amazon prime member here sharing a couple of our recent usage pattern changes:
    – Netflix at this point has evolved from “what movie should we watch?” to “put on a kid video”
    – If there is something specific we want to watch, I can usually find it to stream on Amazon for a small fee and occasionally to pay the $15 to own rights to see it.

    Netflix needs to figure out a way to stream content from the DVD catalog that I can buy/rent from Amazon if it wants to remain the first place I turn to when looking for content. Netflix has by far the best recommendation engine, but their streaming content catalog of late has been meh for us.

    Other note: We have been streaming or over the air HD only for 7 years now. No cable.

    • Ginger Rogue

      I have to agree. I turn to Netflix streaming when I want to watch one of their original series some obscure foreign TV series. And then only sometimes because Netflix doesn’t have all the episodes. So have to go back to Amazon or Hulu if I want the whole thing.

      If I want new I have to use Netflix’s DVD service or Amazon. So I’m already paying for two Netflix services. A raise in price for Netflix would means for me that it loses what marginal value it already has.

  3. I’m calling $7.99 for one stream, $9.99 for two streams, and $14.99 for four streams. Current subscribers grandfathered in at their current rate. I don’t think Netflix will mess with SD vs HD, it would degrade the experience.

    • I’ve been wondering about this myself. An SD-only offering could alter the perception of how Netflix streams look like, so I don’t think that is very likely either. However, I could see them offer regular HD only vs. what Netflix used to call Super HD in a basic tier.

      So here’s my prediction, complete with the lingo they might use.

      $7.49 – One stream, basic HD.

      $9.99 – Three streams, the best HD and 4K streaming.

      $11.99 – Five streams, the best HD and 4K streaming.

      That way, the company would effectively shift the majority of users to $10. $12 would still be an edge case, and $7.50 would be the value offering that feels cheaper than the current plan, but really doesn’t make a big difference for the company.

  4. Netfloxed

    Netflix streaming quality has been terrible for months. I don’t see Netflix delivering 4K streams when it struggles to provide even SD quality streams to a significant fraction of its users during peak hours.

      • Netfloxed

        I believe that my rock-solid Comcast connection, which is _always_ faster than the guaranteed speed of 50 mbps down, should be sufficient to stream Netflix, which only requires 3.5 mbps. Other video apps seem to work just fine over Comcast.

        Received wisdom seems to suggest that Comcast doesn’t play nice with Netflix because Netflix is taking away business from Comcast, which is mainly a cable television provider and only incidentally a provider of internet.

        I probably could use a new ISP, but only one that isn’t also a cable television provider, like TWC or U-verse are. Any suggestions?