Netflix offers streaming-only subscription offer

The continued success of Netflix offers some interesting lessons for newspaper publishers trying to survive in the digital and mobile economy.

Michael Copeland reported in Fortune last week that the company's stock is up 200 percent this year, despite being written off as dead several times since its founding. Much of that success is due to CEO Reed Hastings' willingness to disrupt his own DVD-by-mail service before anyone else could beat him to it. Copeland writes:

"Hastings anticipated, virtually from the moment he started Netflix, that consumers would eventually prefer to get movies instantly delivered via the Internet."

Once the technology allowed, Netflix moved quickly to launch a streaming movie offering first available on dedicated set-top boxes, then desktop computers, and now on the iPhone, iPad, Android and various other Internet-connected devices.

As part of that effort, Netflix on Monday announced it would offer a $7.99 per month subscription option that would provide streaming video access only. And, in return, each of the company's DVD-by-mail subscriptions are increasing by at least $1, and as much as $8 per month. The new pricing structure creates a strong incentive for users to migrate to streaming-only options, which generate lower marginal revenues, but higher profits for Netflix.

The business model for print publications, largely dependent on advertising as well as subscription revenues, is not as clearly easy to migrate to digital. But then again, Copeland reports that in 2005, a financial analyst targeted Netflix as a $3 stock due to the expected competition from movie rental incumbent Blockbuster.

Netflix is now at about $185 and Blockbuster is in bankruptcy. So, the question may not be clarity, but the willingness to bet against one's current business model in favor of the future.


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