Netflix Raises Prices By 60%
July 2011
Netflix announced price changes for DVDs by mail and streaming options for subscribers this month, drawing criticisms from many customers. The lowest cost plan with one DVD out and streaming increased from US$10 to US$16 per month. A new streaming only plan now costs US$8 per month, however. And a new DVD only service also will cost just US$8 per month. This clearly separates the streaming service from any physical DVDs, and may end up creating more of a demand for the streaming service.
Netflix is putting a big focus on its streaming services and is making corporate changes to reflect these changes. A new Netflix executive was appointed to take charge of the DVD by mail service, which will free other executives to focus on the streaming business.
Apparently business is still going strong for Netflix. In Q2/2011, it added 2 million new subscribers to reach 25.56 million (24.6 million in the U.S., 970,000 in Canada), a growth of 70% from a year earlier. For the quarter, Netflix had revenues of US$789 million, and net income of US$68 million. Churn in the U.S. increased from 3.9% in the first quarter to 4.2% in this quarter.
Average revenue per subscriber went down quarter-over-quarter, from US$11.97 to US$11.49 in the second quarter ended June 30 because 75% of new subscribers signed up for the streaming-only plan.
According to an analysis by investment firm Piper Jaffray, it costs Netflix up to US$0.75 cents to mail a physical DVD, but only US$0.05 cents to stream. That’s probably why Netflix is increasing the price for DVD subscriptions. The company believes that shipments for DVDs have peaked, because of the popularity of the streaming service. During an analyst call, Netflix executives said that they are following the competition from Amazon, Hulu and HBO Go. However, they said that they haven’t “detected an impact on our business from Amazon Prime.”
In the future, Netflix is looking to expand its streaming service into 43 countries in Latin America
before the end of 2011.
Analyst Comment: Despite the cries of agony of some of its customers protesting this price change, Netflix will probably gain in the long-term, so long as it improves its online offerings and streaming services so that most subscribers can see the added quality and choice of titles. Given the high cost of developing new/compelling content, Netflix appears to have made the right decision with this price change.
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Telstra Closes Big Pond Movies DVD Rental Service
July 2011
Australian Telco Telstra said it is closing its DVD rental service “BigPond Movies” in September 2011. Australian DVD rental company Quickflix will acquire BigPond’s library of DVD and Blu-ray discs and equipment. Since Telstra’s launch of “T-Box” in July 2010, customers purchased over 1.5 million (streamed) movies from the service. In February 2011, Telstra announced that it has sold 120,000 T-Boxes in the country. The BigPond DVD rental service was launched about 7 years ago, but Telstra apparently wants its customers to begin using its online service rather than physical DVDs. However, not all content will be available via T-Box. Currently it only has 2,500 titles online, while the DVD service has about 45,000 titles. Quickflix also announced that it signed a deal with Sony Australia, in anticipation of beginning its online movie streaming service. With the deal, Quickflix will provide a movie streaming service on Sony’s BRAVIA Smart TVs, as well as some connected Blu-ray players and even Sony VAOI computers. Quickflix will launch its BRAVIA streaming service later in 2011.
Analyst Comment: It should be interesting to see how the movie streaming competition works out especially if there is an overlap of titles offered by Quickflix and Telstra.
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