Netflix looks at price shift

Bloomberg NewsJanuary 22, 2014 

— Netflix, the world’s largest subscription streaming service, projected better-than-expected subscriber growth and said it may change prices to reduce account sharing.

Netflix is forecasting 2.25 million new domestic subscribers this quarter, according to a statement Wednesday on its website. The company predicts first-quarter profit of $48 million, or 78 cents a share, compared with analysts’ projections of 75 cents.

New price strategies are being tested that would curb the ability of viewers to share accounts without paying more. Netflix is considering three tiers affecting how many devices customers may use at once, compared with the current $7.99-a-month unlimited tab. That would increase how much some new subscribers pay every month.

“Management appears more confident than at any time in their history,” said Michael Pachter, an analyst with Wedbush Securities in Los Angeles. “It’s either a sign that things are really great or that they’re starting to believe their own hype.”

Netflix forecasts first-quarter domestic streaming revenue of $796 million, with an operating profit of $198 million. International streaming is forecast to lose $42 million on revenue of $267 million.

Ahead of Wednesday’s quarterly report, Netflix stock rose 1.5 percent to $333.73. It was the top performer last year in the Standard & Poor’s 500 stock index.

CEO Reed Hastings has resisted calls to raise prices by investors who cite the company’s $6.4 billion obligation to pay for exclusive content over the next five years. Instead, Netflix has begun testing different prices.

Netflix is offering some new customers plans that provide access on as many as four screens, letting household members watch different shows at the same time. The monthly prices ran from $6.99 to $11.99, according to an offer posted on the Los Gatos, Calif.-based company’s website in December.

“Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone’s taste,” Hastings said in a letter to investors. “If we do make pricing changes for new members, existing members would get generous grandfathering of their existing plans and prices.”

Fourth-quarter net income soared more than fivefold to $48.4 million, or 79 cents a share, Netflix said on its website, beating the 66-cent average of 31 analysts’ estimates compiled by Bloomberg. Domestic subscribers, including free trials, rose to 33.4 million, compared with the 33.1 million average of 10 estimates compiled by Bloomberg. International losses shrank.

With U.S. subscribers at Netflix topping those of Time Warner’s HBO, investors are looking to gauge the growth potential beyond so-called premium cable networks. Hastings’ strategy of offering unlimited Web viewing of movies, TV shows and original programs is financing international expansion.

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