Netflix Nukes Itself

Jul.12.11 | About: Netflix, Inc. (NFLX)

There's dumb and then there's really dumb.

With this change, Netflix will no longer be offering unlimited plans that include both streaming and DVDs by mail. The unlimited streaming plan will remain at $7.99 a month. The price for getting both unlimited streaming and unlimited DVDs will be $15.98 a month ($7.99 + $7.99).

No grandfathering either. This is a big price hike if you currently have the dual plan. If you have a Redbox near you, it's also stupid; you'll likely save money by using Redbox for the DVDs, assuming you watch a low or moderate number of them. (Note that high-rate users are unprofitable anyway, so the last thing you want to do is drive away those who pay much more than they cost.)

Higher content costs and the fight between effective bandwidth poaching (by firms like Netflix) and providers (who are increasingly getting tired of it and are clamping down) are going to compress these guys' margins until they scream.

Does this presage a problem with margins and operating costs in the upcoming earnings release? We'll soon find out.

Disclosure: No current position but I may be initiating a position within the next 48-72 hours.