Sunday, May 31, 2015

Netflix at $8.99 is Still a Bargain

TV-Q and A-Taylor Schilling Paul Schiraldi/Netflix/APThe second season of "Orange Is the New Black" debuts on Netflix on June 6. Binge viewing is about to get a little more expensive. True to its word, Netflix (NFLX) announced on Friday that the rate for its streaming plan will go up a buck to $8.99. Netflix is freezing rates for current members at $7.99 a month for the next two years. Netflix closed out its latest quarter with more than 35 million domestic subscribers and more than 48 million members worldwide. That's a lot of people with an incentive to stick around, but it's not as if $8.99 a month will scare potential viewers away. Netflix is still one of the best deals in premium video entertainment, and it knows it. 17.5 Channels of Quality Entertainment Letting Netflix go is easy. It's a simple service to cancel. The rub comes in finding cheaper ways to entertain oneself. Forget cable and satellite television. Those tabs can run into the triple digits, and that's with most channels going unwatched. Ratings tracker Nielsen put out a shocking metric last week, reporting that families in this country average only watch 17.5 of the 189 TV channels in their subscription plans. Yes, we're watching just 9 percent of the channels that we pay for. There are other forms of premium entertainment, of course. Time Warner's (TWX) HBO is the largest premium movie channel. It's home to "Game of Thrones," "Girls," "Veep" and a rotating slate of fresh home video releases. Subscribers have access to HBO Go, tapping the channel's vault of classic HBO shows and content for your streaming pleasure. But HBO costs nearly twice as much as Netflix. Oh, and you also need to have an existing cable or satellite television plan. HBO Go is a standalone offering in select foreign markets. (AMZN) has a growing catalog of streaming content that it makes available at no extra cost to members of its Amazon Prime loyalty shopping club. It can no longer be considered Netflix Lite, either, especially after landing licensing deals to content that's not available on Netflix. From "Downton Abbey" to Viacom's (VIA) Nickelodeon and Comedy Central content, Amazon's a reasonable option. Later this month several older HBO shows will be available on Amazon Prime Instant. However, Amazon Prime went for an even bigger price hike this year, boosting its annual rate from $79.99 to $99 for the year. That does include free two-day shipping through on merchandise and other digital perks, but Netflix's catalog remains substantially larger for what are now comparable prices. The Joys of an Expanding Digital Ecosystem Netflix spends a lot of money on content. It had $7.1 billion tied up in streaming content obligations as of the end of March, up from last year's $5.7 billion in tally. Netflix has more customers so it can invest in more content. That's the beauty of this expanding and scalable model. Netflix has committed 25 percent more in future content over the past year, and it can do that because it's dividing the costs between the 33 percent more subscribers it has now than it did a year earlier. The math works in Netflix's favor, but the math is even strong for consumers. They're getting more content. The pool of content grows, and since we're talking about digital assets, every single subscriber has access to more and more shows and movies whenever they want to watch. Naturally this perk of escalating content will go the other way if subscriber growth stalls or begins to decline. This could be why Netflix went with a modest 12.5 percent increase in price instead of the 25 percent uptick to $9.99 a month that it had also considered. However, as long as Netflix keeps growing -- and we're at 48.35 million streaming accounts and counting -- it should be more than worth the updated price for new subscribers.

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