Netflix Fee Hike Is a Boon (for NFLX)

Stock quotes in this article: 

NFLX

Netflix (NFLX) just announced that its most popular streaming subscription plan would see a $1 rate increase to $9.99 per month for new customers. The "Standard" plan allows two users to view movies or TV shows simultaneously. New customers in the U.S., Canada and Latin America will be charged the new rates starting in November. This follows a similar move made by the company across Europe.

Of course, the dark-siders will come out and scream, "They will lose all their subscribers!"

But I don't believe a dollar-per-month increase will affect a single current subscription. Existing customers will be provided a grace period of differing lengths before prices go up for them as well, just like the company did in Europe.

As of June 30, 2015, the company had more than 43 million customers in the U.S. Let's assume that a mere half of them use the popular Standard plan and, thus, will pay that $1 per month increase. That translates to a 12-month revenue increase of approximately $260 million, after the existing base has shifted to the new plan.

Revenue estimates for the year ending December 2016 are for $8.6 billion. Do you think a $260 million addition to the top line will make a difference? How about a 3% increase in 2016 revenues?

Estimates for the company's programming costs for 2016 are in the $4 billion range. Do you think that $260 million in additional revenues will help? Sure, it will.

Keep in mind we are assuming that only half the subscribers in the U.S. are on this plan. Either way, it's a win for the company. Look for consensus estimates to go higher.

Original Link
http://realmoney.thestreet.com/articles/10/08/2015/netflix-fee-hike-boon-nflx