This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Netflix Will Raise Prices

Stocks in this article: NFLX TWX

NEW YORK ( TheStreet) -- Barring a buyout of epic proportion or another desperate cash infusion or three, Netflix (NFLX - Get Report) 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 (TWX - Get Report) 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.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,416.85 +225.48 1.31%
S&P 500 2,021.25 +19.09 0.95%
NASDAQ 4,683.4070 +45.4130 0.98%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs