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Analyst: Netflix Should Clamp Down on Account Sharing

22 Apr, 2013 By: Erik Gruenwedel

Wedbush Securities Michael Pachter says SVOD pioneer could add $20 million in monthly revenue by bumping rental price $1

With a burgeoning domestic subscriber base approaching 30 million, Netflix has appeared indifferent toward multiple users on one rental account — a policy Wedbush Securities analyst Michael Pachter said should change.

Officially, Netflix allows up to six separate devices linked to one account, while allowing users in a household to simultaneously stream on two divices at a time. How stringently Netflix monitors (and would act upon) household usage is unknown.

Regardless, the potential for lost revenue can’t be ignored at a time when Netflix increases exponentially content costs on third party license agreements and original programming, according to Wedbush Securities analyst Michael Pachter.

“It’s time to change,” said Pachter. “They can say they’re cracking down on piracy. They can appeal to fairness.”

Netflix has said it is considering offering family plans that theoretically would be cheaper than multiple individual accounts under the same roof.

Pricing is a sensitive subject for Netflix and CEO Reed Hastings after the service in the late summer of 2011 implemented a 60% price hike to its popular hybrid disc/digital plan, and tried to spin-off its lucrative by-mail disc service. The poorly communicated changes resulted in 800,000 subs immediately dropping service, a media firestorm and freefalling stock price.

Pachter believes a more measured approach focusing on the number of users and devices in a home could satisfy management’s revenue concerns without alienating subscribers. He says Netflix could up fees for its “Just for Kids” platform, in addition to rates per device.

“They could raise prices by $1 per device per month without alienating many people — which should add $20 million a month to revenues,” Pachter said.

The analyst agrees Netflix could follow the path taken by rival Hulu, which incorporates ads in its ad-supported and Hulu Plus SVOD services. Hulu generated about $700 million in revenue in 2012.

“It’s safer, but they won’t do it,” Pachter said.

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