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Netflix Reportedly Tests Ultra Premium Pricing Plan in Europe

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Netflix (NFLX - Free Report) is reportedly trying out a new ultra premium pricing plan in Europe. Per a blog cited by CNET from Tutto Android, the plan allows users to simultaneously stream Ultra HD video and audio across four devices.

The plan is likely to cost €16.99 (almost $19.80) in Italy. Per Endgadget, the prices can vary from €16.99 to €19.99 per month. Netflix currently has three subscription plans — $7.99 Basic, $10.99 Standard and $13.99 Premium.

Reportedly, the test run also restricted some Premium subscribers, who already run Ultra HD video and four screens, to a maximum of two devices, simultaneously.

Content Strength to Drive Subscriber Base

Although there is no surety that Netflix will bring out this plan in entirety or partially raise prices or put restrictions on simultaneous device uses, the test reflects the company’s growing confidence on the stickiness of its streaming service.

This is primarily due to Netflix’s content strength and expanding original programming portfolio. The company added 7.41 million new members in the last reported quarter, which topped management’s forecast of 6.35 million.

Currently, Netflix has 125 million subscribers. More noticeable is the increase in paid streaming members across the globe, which increased 26% year over year to 118.9 million, despite a 14% increase in its average selling price (ASP).
 

Netflix, Inc. Price and Consensus

Netflix, Inc. Price and Consensus | Netflix, Inc. Quote

 

Netflix remains confident of adding more and more subscribers as the trend of Internet TV/binge viewing catches up fast. The company expects to add 6.2 million new subscribers in the second quarter of 2018.

Netflix’s focus on producing more quality original content is helping it increase as well as broadly diversify its subscriber base. The company’s strengthening content portfolio is evident from the nominations and subsequent prestigious award wins like Oscars and Emmys.

Netflix is also snapping up Hollywood talent to boost its movie business. Partnership with prolific creators like Ryan Murphy, Shonda Rhimes, Shawn Levy and Jenji Kohan will provide an impetus to Netflix’s original content expansion strategy. The company plans to release 80 original movies in 2018.

Regional Programming Key Catalyst

Netflix’s efforts to attract viewers through investing in more regional programming have added significantly to its user base. The company is set to spend $8 billion on new content production this year alone.

Netflix’s chief content officer, Ted Sarandos disclosed at the MoffettNathanson Media & Communications Summit that the company is set to release 470 originals by 2018, which will take the total count for the year to nearly 1,000.

Netflix plans to add more regional languages to make the service more appealing. As of now, it offers content in over 24 languages and has created 80 shows in 30 international markets.

Netflix recently expanded its presence in India through two movies and a thriller web-television series named Sacred Games. The company is strengthening its original content with upcoming shows like supernatural horror show Ghoul, cricket novel Selection Day, and an unscripted show based on the Mumbai Indians and the Indian Premier League (IPL).

Price Increase Can Hurt Competitiveness

Although Netflix’s premium expanding content can justify a higher-priced plan, the company will surely lose some competitive edge to Amazon’s (AMZN - Free Report) Prime, Hulu, and upcoming services from Apple (AAPL - Free Report) and Disney (DIS - Free Report) .

This is particularly true for cost sensitive markets like India. Notably, per Bloomberg, “Netflix’s average monthly price in India of 500 to 800 rupees ($7 to $12) is twice as much as the average pay-TV offering.”

Hence, Netflix’s plan to add 100 million users from India will hurt due to a price increase, as it will lose competitive edge against 20th Century Fox’s Hotstar and Amazon Prime.

Currently, Netflix has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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