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Netflix Believes Its Pricing Provides Great Value

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Netflix claims to provide great value for its service

Previously in this series, we discussed the main drivers behind Netflix’s (NFLX) better-than-expected earnings in 1Q15. During the earnings conference call, Netflix was asked if it thinks it can raise the prices of its services, especially when new entrants in the video streaming market have come up with expensive options.

Recently, Time Warner (TWX) launched its HBO Now service. It’s priced at $15 per month. Dish Network’s (DISH) Sling TV service provides video streaming for a few channels for $20 per month—as the above chart shows. Even Sony’s (SNE) Vue service is on the expensive side, according to Netflix. All of these services are higher than what Netflix provides for $7.99–$11.99 per month. Netflix’s $11.99 service is for someone looking to watch the content on 4K TV.

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Netflix believes new streaming players aren’t a threat 

Netflix’s management replied that the service provided by these over-the-top players is good, but Netflix’s service is great at that price point. Management also mentioned that the HBO Now service at $15 is good value because traditional cable companies have charged more for the HBO service in the past.

Netflix also believes that both Netflix and HBO have completely different content, so HBO Now doesn’t threaten Netflix’s business. It’s true that HBO and Netflix have original programming that doesn’t overlap with each other. If users can access shows like Game of Thrones and The Big Bang Theory online, they won’t disrupt Netflix. It’s popular because of its original shows like Orange is the New Black and House of Cards.

Netflix also considers offerings from Sony Vue and Dish’s Sling TV as more of a competition to pay-TV providers because Netflix offers great value at a lower price.

To gain diversified exposure to Time Warner, you could invest in the Consumer Discretionary Select Sector SPDR (XLY). XLY invests about 3% of its holdings in Time Warner.

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