"We are now primarily a streaming video company delivering a wide selection of TV shows and films over the Internet," said Reed Hastings, Netflix co-founder and CEO. "Today's action reflects the tremendous customer value we've injected into streaming from Netflix, our initial success with a pure streaming service in Canada for $7.99 a month and what our U.S. members tell us they want."
The company also announced that the price of its popular subscription combining unlimited movies and TV shows streamed instantly over the Internet and unlimited DVDs delivered quickly by mail, with one DVD out at a time, will increase by a dollar a month to $9.99. Prices of subscription plans allowing for more DVDs out at a time will also increase and are detailed at http://blog.netflix.com. Price changes take effect now for new sign-ups and in January for existing members.
The stock is roaring this morning, up over $10:
My concerns and issues remain:
On a forward basis I think these guys are digging their own grave. Moving toward a fully-online content delivery system sounds great, but it's only great because they're poaching other people's build-out costs. Theirs are near zero - their only recurring cost is for whoever they pay for distribution. But in the Internet world that's people like Akami (AKAM) and similar; it's not the people who built the lines into your home - those are Netflix' competitors in this case!
I'll be watching these folks carefully, and I sure won't be buying the stock. In fact this looks like it will become an absolutely delicious short at the right time - but that day, obviously, is not today.
Of particular interest to me will be how many people revolt on the price increases for their "traditional" service, and how their online streaming catalog evolves. As it sits right now the newest releases are only available via physical delivery (a niche that Redbox and similar cover quite well also if you're near one) while the streaming service is mostly about older films, TV shows and the like.
Watch the margins and the operating leverage, along with any signs of serious pushback from the "last mile" folks. The latter I expect to see in earnest within three to six months - tops.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
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