Netflix Tests Low-Priced Plan To Counter Cut-Rate Amazon

Investor's Business Daily

Netflix is responding to Amazon.com's competing streaming video service by offering a new, lower-priced plan.

The streaming media giant is testing a discount plan for new subscribers priced more closely to the subscription service offered by Amazon (AMZN), the world's leading online retailer.

Netflix (NFLX) will offer new subscribers a plan in which they would pay $6.99 a month for streaming to one device at a time. The plan will be limited and may be temporary, but it could be expanded.

The company now offers a $7.99-a-month plan that allows users to stream to two screens simultaneously. The rate goes up to $11.99 a month for streaming up to four screens.

The plan likely is aimed at the value-conscious consumer and at Amazon, according to Sterne, Agee & Leach analyst Arvind Bhatia. Amazon's Prime two-day shipping service, which costs $79 a year, includes a subscription to its own video streaming service. That price, notes Bhatia, works out to $6.67 per month.

In his note, Bhatia says Netflix's plan has some drawbacks.

"While the lower price could attract new subscribers, it could also somewhat cannibalize current subscribers given how easy it is to cancel and re-signup for the service," he wrote. "Also, one has to wonder what impact this would have on Netflix's ability to raise prices in the future, which is an important part of the long-term thesis on the stock and is needed to offset rising content costs.

Netflix is losing a lot of content on Jan. 1, including "Titanic," "Top Gun" and "Braveheart." It's been able to win over subscribers with exclusive content such as "House of Cards" and "Orange is the New Black." But Amazon is beefing up its content, recently launching its first exclusive series, "Alpha House.

Shares of Netflix rose a fraction Tuesday while Amazon climbed 1%. For the year, Netflix soared 298% and Amazon 59%.

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