Netflix tests subscription fees based on number of account users

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

LOS ANGELES — Netflix Inc., the largest subscription streaming service, is testing new prices based on the number of people who can use an account, a move that could force customers to pay more for additional family members.

Netflix is offering some new customers plans that provide access on as many as four screens, letting household members watch different shows at the same time. The monthly prices range from $6.99 to $11.99, according to an offer posted on the Los Gatos, Calif.-based company's website.

If successful, the pricing plans could be expanded to more customers. The test suggests Netflix, with more than 40 million subscribers, is looking for ways to curb account sharing while providing viewers with more ways to watch, just as cable TV operators rent additional set-top boxes to households.

"I am sure that they have the ability to monitor device use," said Michael Pachter, an analyst at Wedbush Securities in Los Angeles, who has an underperform rating on the stock. "I admire their resolve to try to combat piracy. This is an ingenious solution."

The standard Netflix streaming service costs $7.99 a month, according to the company's website. The DVD by mail subscription starts at $7.99 for one disc at a time.

"We test all the time in an effort to come up with better options for consumers," Jonathan Friedland, a spokesman for Netflix, said in a phone interview yesterday. "There are numerous tests at any given time."

Netflix announced plans for the $11.99-a-month service in April, with Reed Hastings, chairman and chief executive officer, saying at the time he expected fewer than 1 percent of customers to upgrade.

Netflix, the top-performing stock in the Standard & Poor's 500 Index this year, has almost quadrupled as the company beat earnings estimates and outpaced analysts' estimates for subscriber growth.

One possible risk for the company is that customers downgrade to the one-screen, $6.99-a-month option rather than pay for a higher level of service.

"If $6.99 enables Netflix to reach more consumers than $7.99 that's obviously positive but it's hard to imagine the $1 being a major price inhibitor," said Richard Greenfield, an analyst at BTIG. "If consumers who would have taken the $7.99 plan now sign up at $6.99, that all comes out of their profit margin. This is not the next pricing move investors were expecting."

The company also said it is terminating a poison pill anti- takeover defense, almost two years ahead of schedule. Investors aren't required to take any action as a result of the change, the company said in a statement.

The poison pill, designed to make an unfriendly takeover too expensive, was adopted in November 2012 after billionaire Carl Icahn disclosed a stake in the company. The measure was set to expire in November 2015.

The move signals Netflix's board is less concerned about a hostile takeover after this year's advance, which has increased the company's market value to $21.7 billion. The board unanimously voted to adopt the poison pill days after Icahn acquired almost 10 percent of the company. He sold about half his shares Oct. 10, suggesting a gain of about $800 million.

Netflix also disclosed 2014 pay packages yesterday for its senior officers. Hastings will receive $3 million in salary and a $3 million stock-option allowance.

His 2013 pay amounted to $2 million in salary and a $2 million option allowance, according to company filings.