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Here’s how Netflix is thinking of changing subscription prices

Published Jan 23rd, 2014 5:03PM EST
How Is Netflix Changing Prices

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For the past year, Netflix has been experimenting with different pricing schemes. Back in December, Netflix began offering a $6.99 plan that was standard-definition and only allowed streaming to one screen. This was $1 less than the more common $7.99 plan, which streams in high-definition to two screens. In addition, Netflix has had a family plan since last April at $11.99, which allows for streaming up to four screens.

Now, Netflix hopes to make three-tiered pricing official, according to its Q4 letter to shareholders (PDF). Netflix CEO Reed Hastings and CFO David Wells write that it has “been testing 1-stream and 3-stream variants, as well as SD/HD variations, at various price points. Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone’s taste.”

Aware that such a move could confuse customers, Hastings said during the Q4 earnings call that it wants to move to different priced plans because “it’s not clear that one price fits all.”

Hastings and Wells also note that current customers will not suddenly face rate hikes, although they deny that it’s a possibility in the future.

“Existing members would get generous grandfathering of their existing plans and prices,” Hastings and Wells write.

Netflix has been on a roll lately, announcing on Wednesday in its quarterly earnings report that it added 2.33 million streaming subscribers in the United States in the last quarter. Having three tiers of pricing could help Netflix on two fronts, if it doesn’t confuse customers. A cheaper plan could help Netflix continue to add new customers, while a more expensive plan could help Netflix extract more revenue from its current customer base.