30 July 2011
Netflix, LVLT, How the recent price change will affect their relationship?
Recently Netflix announced a step price increase and effectively separated their online streaming and traditional DVD by mail business models. Initially this caused an revolt by even its most loyal subscribers. People in general hate change but usually calm down after the hype has disappeared and calmer heads prevail. The efficiency that customers have experienced from not having to wait for their DVD's to appear in the mail has gained more customers than they will lose after separating the two. I believe the price increase will have a revenue increasing situation for the company. Netflix answers the revolt by announcing new deals that will increase their large inventory. This will give its online subscribers more choices for less than the cable company charges for a premium channel. Netflix is still able to serve the DVD crowd that was the core of its business model and pay the higher cost associated with it. The greatest benefit for the company is that it separates the higher return online subscribers and the lower profit subscribers to the DVD service. It also gives its subscribers an incentive to become online streamers. This should increase rather than decrease the online subscribers. Therefore the demand it generates for LVLT's Services will only increase.
Labels:
LVLT,
Netflix,
online subscripiton
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Thanks! I appreciate your comment and will consider adding it to the Bulls and Bears report.