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.

By Jason Notte Dec 6, 2012 3:30PM

Credit: Paul Sakuma/AP
Caption: The exterior of Netflix headquarters is seen in Los Gatos, CalifDon'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.

It swears.

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.

More from Money Now

Dec 7, 2012 2:37AM

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.

Dec 6, 2012 9:01PM
I  like the new format and would happily pay more for the service. The '8' dollars is nice though. I like the television series. You can get lost watching a whole season in one session. It's quite fun and hard to stop watching. More Please! Thank you.
Dec 6, 2012 8:32PM
why is every one complaining about the split? netflix is trying to go onto only streaming, not only that it will aslo greatly lower the cost to be rid of the cost to buy dvd's shipping and handeling, as well as other problems that go along with shipping dvd's. im sorry but if you are really complaining over a company making something easier for the public, you are quite retarted.
Dec 6, 2012 8:06PM
I have a netflix dvd subscription and I'm happy with that but i do wish that they would make a deal with National Geographic. We are all missing out on NatGeo's latest documentaries, they make the best...
Dec 6, 2012 8:03PM

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....

Dec 6, 2012 7:57PM
Netflix killed the goose that laid the golden egg last year. I am not sure they will ever recover.
Dec 6, 2012 7:56PM
I've had Netflix for about 3 years. Most if the time it streams just fine. However, when it does have issues it's pretty much worthless and very frustrating. I still haven't forgiven them for doubling the price when it came to the 1 mail-in dvd subscription. They lost a ton of customers over that fiasco. I also own a ROKU box which streams Crackle free of charge. (With short ads) One more price increase would make it a "value" I could live without, easily.
Dec 6, 2012 7:47PM
I dropped Netflix after their price increase.  Amazon is much better anyway.
Dec 6, 2012 7:47PM
What is wrong with cable TV? 1) too expensive for 80% crap programming 2) commercials. The most insidious of these two is COMMERCIALS. Why, why, why....should I have to pay for cable, and then have them BOMBARD me with commercials? I'm paying a big expense for the privilege of being harassed? No, no, no. Hulu on the internet, okay, I put up with the commercials here, because I'm already got internet access, so whatever. HULU, no, and hell no. I will not pay for commercials. Haven't looked at Amazon, but, seems like Netflix to me. BOTTOMLINE: NETFLIX ALL THE WAY...even with the split of streaming and dvd's...this is BY FAR the best option.
Dec 6, 2012 7:22PM
My complaint is the fact that the STILL lag far behind Redbox with new releases. I waited for months for the release of a DVD, even had it in my queue, only for the status to change from 'releases on (date)' to 'very long wait'. I ended up renting it from Redbox that same night. There is NO EXCUSE for a company that makes millions to be to cheap when it comes to providing enough new releases to go around. BOO HISS to Netflix and their crappy service.

Dec 6, 2012 7:18PM
I like Netflix. I use both streaming and dvd and I have no complaints. I also have Hulu Plus but their shows do have commercials. Not a deal breaker but I always look to Netflix first.
Dec 6, 2012 7:16PM

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.

Dec 6, 2012 7:09PM
actually it was the first change and price hike that sucked for me....The more recent splitting of services actually got me about back to where I was paying and now I only pay for what I use

the problem is the great customer service is now virtually gone and the selection and lag time for DVD's is completely 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

Dec 6, 2012 7:05PM
Don't care whose movies they have the "exclusive" rights to.  I have no plans to go back.  The proved last year they don't care about their customers.  I hope they go under soon.
Dec 6, 2012 6:31PM
We've never had cable (married since 2006) and have always streamed stuff off the Internet through Hulu and Netflix.  I was pretty miffed when they split streaming and DVDs but Netflix is still a pretty decent deal (on-demand old shows! woohoo!).  We get our TV fix through Netflix and Hulu, and I love that Netflix doesn't have commercials.  If we want to watch sports, we go to a friend's house. ;)

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!!!

Dec 6, 2012 6:08PM

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


Dec 6, 2012 5:08PM
That's because they know that raising the cost would only hurt them. Everyone saw how horrible their last price change turned out when they split streaming and renting dvds, upping the cost if you wanted to continue to both stream on your computer AND have DVDs sent by mail. I went without Netflix for a long time after they made that change, and I know a lot of people around me dropped them. I picked Netflix back up when I found they had a lot of the seasons to my favorite television shows available to stream.
Dec 6, 2012 5:07PM
I dropped Netflix like a bad habit when they increased their prices and i have never missed them.
Dec 6, 2012 4:10PM
I would pay more for Netflix, for more better and newer. i cancel Directv. too much commercial and same ole crap. The taxes and fee's is too high... I do miss NFL channel on Directv.. but not the $75 a month
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