Netflix (NFLX) is on top of its game. With 29.17 million paid subscribers in the U.S., popular original programming and new licensing deals, the company seems unstoppable.
There is one large problem that stands in Netflix’s way. According to Bloomberg, up to 10 million users could be streaming Netflix’s video service without paying.
This is a problem for them, says The Daily Ticker's Henry Blodget, but also an opportunity.
“What it means is that people love the service," he notes. "If at some point they want to capture those people and say ‘you know what, we’re not so cool with you doing this anymore,’ the technology is very simple.”
Instead of banning viewers who use other people’s login information, Netflix is attempting to embrace them -- for a small additional fee. Right now, two simultaneous streams per account are allowed for $7.99 a month. Netflix has announced a new pricing option that allows four concurrent video streams per account for $11.99 a month.
Netflix CEO Reed Hastings commented on the new service during the company’s Q1 2013 earnings call.
“We really don't think that there is much going on of the 'I'm going to share my password with a marginal acquaintance,'” he said. He also told investors that he expects less than 1% of users will opt for this new pricing plan.
Though seemingly innocuous, the pricing change might make some investors feel queasy. It was only two years ago that Hastings decided to change Netflix’s pricing model by increasing membership fees and creating Qwikster -- an idea that not only failed miserably but also lost Netflix 800,000 users and 75% of its value.
Fear not, Blodget says, this is no Qwikster.
The new service may entice some users but it won’t solve the problem of password sharing. The company may not seem concerned about widespread account sharing right now but it has the ability to become a costly problem.
“They do have an issue where they incur a cost with a stream and they have to pay for the bandwidth to do that,” say Blodget. “In some cases they have to do a revenue share or licensing fee per stream so they are incurring costs.”
Right now, however, Hastings would like to get people excited about watching Netflix, even if they are streaming it for free.
Netflix recently surpassed HBO’s 28.7 million subscribers, likely because of its new original series "House of Cards." What worked for HBO will work for Netflix too, Blodget says.
Netflix is "following the same playbook that HBO followed 30 years ago, which is originally licensing other peoples content then gradually moving into original content,” he adds.
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