No price hikes from Netflix
The company will keep its $8 streaming subscription plan even after adding an estimated $300 million to its $5 billion debt load.
Don't worry, Netflix (NFLX) users. Just because the company spent upwards of $300 million on a deal with Disney (DIS), saw revenue drop 88% last quarter and devoted more than $5 billion in debt to shows and movies doesn't mean it's raising prices.
Only a few days after announcing an agreement to stream classic Disney movies by next year and get exclusive rights to Disney, Pixar, Marvel and perhaps Lucasfilm's "Star Wars" movies by 2016, Netflix seems to be taking its first steps into Fantasyland. Ted Sarandos, the company's chief content officer, said Netflix is "not contemplating" raising its $8-a-month fee for unlimited streaming video.
That's not exactly surprising, considering swaths of customers dropped Netflix like a feeble Wi-Fi signal in 2011 after it divided streaming and DVD-by-mail services while doubling their combined price. It's also not exactly realistic. Janney Montgomery Scott analyst Tony Wible believes Netflix will pay more than $350 million a year to secure the deal. Wedbush Securities analyst Michael Pachter was somewhat more conservative in his $300 million estimate, but far more dour about the deal in his research note.
"Ultimately, we think that deals such as the Disney deal could spell doom for Netflix," said Pachter, who rates Netflix "underperform." "Perhaps most importantly, a long-term and expensive content deal makes Netflix less attractive to potential acquirers."
Pachter's second point isn't exactly a small one, as activist investor Carl Icahn recently purchased a 10% stake in the company and recommends consolidating it into a bigger entity like Amazon (AMZN) or Apple (AAPL). In response, Netflix adopted a "poison pill" anti-takeover share strategy as a result, vowing to flood the market with shares if any shareholder's stake exceeds 10%.
Netflix management has made clear that it wants to continue on alone and that it's willing to cut corners and forgo expensive exclusivity deals with cable channels like Starz or Epix in favor of broader content-based contracts with DreamWorks Animation, The Weinstein Company, Relativity Media, Open Road Films, 20th Century Fox (NWS), AMC Networks (AMCX) and others. That's given Netflix a stockpile of commercial-free TV series and episodes that have helped it dominate prime-time streaming.
The Disney deal is a big step toward bulking up that lineup and is a bit of a departure from the company's previous line of thinking about the mouse and company. As its deal with Starz was about to expire in February -- and its access to Disney content along with it -- Netflix told shareholders that the 15 Disney films including "Toy Story 3" and "Tangled" that Starz brought to Netflix streaming at the time accounted for just 2% of the service's U.S. viewing. By Wednesday, Sarandos changed Netflix's tune to something more resembling "It's A Small World After All."
"When we looked at the data of when we used to have Starz, the ones that constantly performed for us were those big animated features, lots of repeat viewing," Sarandos said during an interview with filmmaker Harvey Weinstein at the UBS Global Media and Communications Conference on Wednesday. "It's a nice, safe brand halo when you put your kid in front of an iPad."
Unfortunately for Netflix, those golden halos get expensive. As mentioned earlier, Netflix has $5 billion in debt from content alone. A whopping $2 billion of that is due now.
Meanwhile, this is not the $304-a-share company it was a year ago. At around $86 a share, cash is a little tighter and the decisions that went into the Disney deal have much higher stakes. Under those circumstances, a price hike seems ideal for Netflix, if not invevitable.
Unfortunately, this isn't 2011 and the competition now has Netflix cornered on price. Hulu Plus charges a similar $8 a month for its streaming service, but is hindered by commercials. Amazon charges $79 a year for its Prime streaming service and two-day delivery, but is experimenting with an $8-a-month fee structure similar to Netflix. Meanwhile, Coinstar (CSTR) and Verizon (VZ) launch their Redbox Instant streaming service this month and are charging only $6 a month. The $8-a-month rate gets subscribers both streaming and DVD rentals, similar to Netflix's formerly merged services.
Netflix can't afford to lose out on exclusive content as competitors close in and it can't afford more price-related consumer rage. About the only thing it can afford right now is Disney, and it's a long four years until Mickey starts paying his share.
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Can this be loaded off my Computer with 4G onto our HD Wide screen TV with a plug in...?
We have a bazillion ports on TV..And several on our newer HP(PC) or even Laptop.
I use a three services Hulu Plus, Netflix, and Amazon Prime and it's still cheaper than a cable buy a lot. The Amazon Prime I got for the free shipping, but video was a nice add on.
I won't go back to Dish or Directv they like contracts and I don't do that contract thing....
I wasn't really bothered by the initial price hike, they just did a terrible job of breaking the news that it was happening. For what it is, Netflix is still the best bang for it's buck, looking forward to getting some new content.
the problem is the great customer service is now virtually gone and the selection and lag time for DVD's is completely unacceptable..it is common to wait over 6 months for a new popular title...I will not do streaming as the selection sucks and the picture quality is not that great...I tried Amazon Prime videos and the picture quality and interface is much better
Defenders of Netflix say it is still the cheapest and best alternative, but that does little to sooth the anger over how far down they have fallen..they use to be the best bar none, now mediocre at best and it is shameful they are happy with that
Honestly, I'd be willing to pay $10/month for Netflix because they don't have commercials. Signing up for Netflix, AND Amazon, AND Hulu is still cheaper than cable!!!
i have been a netflex customer for years but it is good just there should be more movies at least put some new ones more often it gets boring ,there is no change in them you see and we the customers need to be satisfied we are happy and so will you .thank you
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