Blockbuster has called a halt to their price war by increasing the price of the total access program by $7 per month. Netflix should follow suit with a several dollar per month hike.
For the past several years, Netflix has been running at break even (on a cash basis..they have shown a profit, but this is because they are not depreciating their DVDs at the same rate that they buy them, which is what BBI and MOVI do).
It is time to see how many people will subscribe to Netflix at a higher price point. They currently spend 50 million per quarter just to keep their subscriber count the same (they loose 1 million subs per quarter…they report a 5% month churn, which is 15% per quarter, which is 15% of 7 million, which equals 1 million. Their cost per new sub is about $50, hence the 50 million per quarter just to stay even.
I wonder how many will quit at a 21.99 per month price?
Note – if Netflix does raise their price, you can bet the BBI will match the raise and price their “online only” program the same.
Unprofitable growth means nothing. The purpose of a business is to make a fair return. Netflix raise your prices, and your stock price will follow.
