For those of you that haven’t seen it yet, Netflix today reported record subscriber growth and earnings for the second quarter of 2010. Netflix even upped its full year earngings, revenue and subscriber guidance for the year.
The company now has 15 million subscribers – which is a 42% gain from a year ago. You would think that Wall Street would reward these kind of results. But Netflix was punished – and the market is right about this.
You see, despite the fact that people are using Netflix more and more, the company is making less per monthly subscriber. A lot less. Netflix’s average monthly subscriber bill last quarter was $12.29. This is a decline of a dollar from $13.29 a year ago.
The clear reason for this is Netflix’s decline is that more and more Netflix users are starting to stream movies with Netflix’s streaming service rather than watching movies on DVD. Because Netflix offers unlimited streaming with even its most inexpensive plan (its $8.99 1-DVD a month plan) more and more of its subscribers are moving to cheaper plans and, as a result, paying less for the service.
The Solution: For starters, Netflix really needs to consider some a la carte pricing options. These are thriving with Pay-Per-View offered by the satellite and cable companies. In addition, Netflix will need to raise the price for its most inexpensive options if those are going to continue to include unlimited streaming. Otherwise, the company will continue to see downward pressure on its average monthly subscriber bill – and on its stock price.
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