After a successful 2013, Netflix is looking for another blockbuster year ahead, and has already started taking bold measures to ensure even higher revenues in 2014. The first move was to reward the CEO, Reed Hastings with a massive 50% increment on his salary after Netflix witnessed a 300% increase in their stock prices from $95.21 in January 2013 to $368.17 on New Year eve’s closing time. The internet movie streaming giant also reached 31.1 million subscribers in the US alone in 2012.
Mr. Hastings will now make $6 million in 2014; 50% in cash and 50% in stocks, followed by the Chief Content Officer Ted Sarandos, who will make $ 4.8 million ($2.8 million in cash and $ 2 million in stocks). Mr. Sarandos also played a crucial role in this success, by strategizing the premium programming service.
After this huge success, Netflix’s CEO also announced the retraction of the “poison pill” policy that was introduced to protect the company from hostile takeovers investors. This protective move was initiated after Carl Icahn, a billionaire, bought huge stakes in the company. However, since the stock prices this year went sky rocketing, the company feels it is fishing in safe waters and there is no threat of a takeover.
Back in 2011, the company had raised its prices to as much as 60%, but this measure backfired. The registered subscriptions went down by 800,000 and the stock prices took a nose dive. However, the company learned from its mistakes and instead of raising prices, they have started experimenting with new packages and different pricing plans. This strategy seems to have worked brilliantly for Netflix as is evident from the soaring stock prices.
Under its different pricing plans, the company now allows a single account to be shared by up to 4 users simultaneously for just $11.99, i.e. 4 users can watch different movies on the 4 different screens simultaneously; 3 simultaneous viewings for $9.99 (on trial); 2 simultaneous viewings for $7.99; and $6.99 for a single screen viewing. This ingenious pricing plan policy has won Netflix a total subscriber’s pool of 40 million in the Americas, and Europe combined. When asked about the 3 screen trial plan, a spokesperson for Netflix responded: “At Netflix we continuously test new thing. Ultimately we look to offer options that make our members happier, measured by their use of our service.”
The success was also partly driven by the two blockbuster series “House of Cards” and “Orange is the New Black”, which are original Netflix production and secured millions of views in the US. The huge amount of revenue and subscribers generated by these two series has opened new avenues for Netflix in the production business as well.
The success of Netflix’s business model raises two questions: How long before competitors sprung up and adopt Netflix’s model and what will Netflix do to prevent these competitors from taking away its market share?
The company has already established its services in the American continents and Europe, and expansion into Middle East, Asia and Australia is now long overdue.