Netflix’s new $6.99 per month, single-stream and SD-only tier being pitched to a batch of new subscribers could help the company expand the subscription pie while giving those users a more bandwidth cap-friendly option as usage-based policies take hold. But some analysts also believe this lower level of level of service could provide Netflix with a competitive weapon to wield against Amazon’s “Prime” service.
According to Sterne, Agee & Leach analysts Arvind Bhatia and Brett Strauser, the new tier, which is still in the testing phase with no promise of a broader deployment, has at least two goals: to attract the more value conscious consumer, and to more effectively compete with Amazon Prime, which runs about $80 per year, or roughly $6.67 per month.
But the analysts also see some potential drawbacks to Netflix's price-reduced plan, which is a buck off a standard tier that provides access to an HD streaming library and the ability to stream video to two devices at a time.
“While the lower price could attract new subscribers, it could also somewhat cannibalize current subscribers given how easy it is to cancel and re-signup for the service,” the analysts surmised in a research note issued Tuesday.
They also wondered if the test could affect Netflix’s ability to raise prices down the road, noting that such increases are "an important part of the long-term bull theses of the stock and is needed to offset rising content costs."
In October, the analysts forecasted that Netflix would end 2013 with a total subscriber base of 50 million – 33 million domestic streaming subs, 10 million international streaming subs, and 7 million domestic DVD customers. Looking further ahead, they believe Netflix can achieve a total global sub base of 92 million, including 58 million U.S. streaming subs, by the end of 2018