Netflix Will Raise Prices

TheStreet.com

NEW YORK (TheStreet) -- Barring a buyout of epic proportion or another desperate cash infusion or three, Netflix will raise prices. It's not a matter of if or even when. In some fashion, it will happen. It's simply a question of how.

Why?

The economics of licensing content and producing original programs, coupled with Netflix's unworkable pricing structure, make it impossible for the company to survive without more revenue.


By the way, before you read my rationale on this, you have to check out this excellent CNBC video with Scott Wapner where Wedbush's Michael Pachter exposes Netflix's original programming charade for the dog and pony show it is:

That's typical Hastings. And it ties back to the issue of the company's one-tier subscription pricing scheme. Hastings absolutely knows this must change for Netflix to accomplish something greater than an inconsistent level of subsistence.


Outside of a buyout or another cash raise, Netflix needs more revenue. Of course, it could devise another stream -- maybe advertising or e-commerce -- but it doesn't need more revenue simply because it requires more cash.

Let's make sense out of that statement . . .

Yes, Netflix needs cash because it continues to bleed it. No doubt. But, even if the company was in a healthy financial position, it will still need to charge higher prices. At least if it wants to attract premium programming.

However, higher prices do not even guarantee that big content owners will give up top-notch content to Netflix. They can stream it themselves much like Time Warner does via HBO GO and its new Warner Instant Archive service.

This is why Netflix took a flyer on original programming: It has absolutely no leverage in its relationships with content providers -- they can pull programming or stop licensing whenever they want to in most cases. It needs to produce its own stuff to fill streaming inventory.


But let's suspend reality and put that elephant in the room aside. Let's assume we live in a fairy tale world where the old guard media will license Netflix more and more and better and better content. To make this happen, Netflix must shed the very real image that it dilutes premium programming by giving it away, all you can eat, for $8 a month.

That's the only chance it has at survival as a third-party streamer (glorified bootlegger) because, guess what, it's not becoming an original programming powerhouse that could even sniff HBO's jock strap anytime soon.

Hastings needs to budge. He can just flat out raise pricing, citing Netflix's value proposition. I would pay more. In fact, I think most people would. The net effect of churn vs. more revenue and the ability to secure (in our fantasy world) higher quality content would end up positive for Netflix. But, given what happened last time he tried to change things, that might not go over well from a PR standpoint. And, believe me, Netflix is all about PR.

However it goes about it, Netlfix absolutely needs to employ a celebrity spokesperson, whose name is not Reed Hastings to massage the move on the public. Hastings has spoiled America with $8/month Netflix. And current subs sure as hell do not want to see his mug popping up on YouTube to explain a price increase.

On-demand options and tiered pricing might be the way to go.

The pitch: We're not taking anything away from you. We're still doing all you can eat for $8/month. However, if you want more, if you want stuff we would not be able to have otherwise, you can pay more for it. Cats such as myself would happily pony up.

Something's going to give. Maybe Cramer's right. Maybe it will be a buyout. I doubt it though. Hastings must budge, but he better not do something this creepy again:

--Written by Rocco Pendola in Santa Monica, Calif.

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