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.    

Level 3 Communications (LVLT)

Level 3 Communications (LVLT)-is an international communications company headquartered in Broomfield, Colorado. The company operates one of the largest communications and Internet backbones in the world. 


Bullish Ideas:

• Reached agreement with Netflix (NFLX) to be primary content delivery service and will host the Netflix content library on its servers.  
• Infrastructure investments have been made with future expansion in mind.  Level 3 can continue to add customers without having to upgrade infrastructure.  After this company becomes profitable it can achieve high profit margins  
• Streaming HD movies, TV Shows, and games will continue to drive internet traffic creating more demand for Level 3 Content Delivery Systems.  
• Net Neutrality Rules: This is going to be a bullish and bearish Idea.  Let me explain..... The FCC passed a rule change/clarification on 21 DEC 2010.  It forces all but wireless broadband providers to deliver all traffic generated on the web.  It also allows ISP's to prioritize content delivery.  This guarantees that Level 3 traffic must be delivered to end users.  It will also allow Content Providers to pay in order to move its content to the front of the line speeding its delivery.  This is going to provide Level 3 a lot of press coverage as these issues are tried in the courts and in the new Republican Congress.   
• Level 3 has been the Content Delivery Provider for the NFL's Global Superbowl Broadcast.
• COAL? -Yes, LVLT derives income from a coal subsidiarity and coal prices have risen drastically due to rising demand in China, India and the United States." Level 3, through its two 50% owned joint-venture surface mines, one each in Montana and Wyoming, sells coal primarily through long-term contracts with public utilities. The long-term contracts for the delivery of coal establish the price, volume, and quality requirements of the coal to be delivered. Revenue under these and other contracts is generally recognized when coal is shipped to the customer."    

Bearish Ideas:

• Profitability has never been achieved: Not much to add to that.  They are not making more than they are spending.
• Net Neutrality Rules:This is going to possible raise the cost of business, but it also guarantees access to ISP's.  This is a bearish idea if you are looking for a stable stock play.  I think this is going to create some volatility, because the FCC's rules and their ability to enforce them, are going to be tested in the courts, and is likely to become a political fight in the new Republican Congress.
• Shrinking Land-line Telecom Business: The land-line business is shrinking fast.  Level 3's long distance and voice services makes up 15% of revenue but has begun shrinking fast. 
• Insiders recently sold shares.  In Jan 4th filings 4 insiders sold shares.  Not substantial amounts but it always makes me wonder?