Netflix's New Streaming-Only Package Will Be Good For Margins, Even Though It's Cheaper

Reed Hastings with DVDs

Netflix formally announced a cheaper, streaming-only plan this morning, which will cost $8 per month. This will actually be GOOD news for Netflix’s margins, even if it means that many people will be spending less money per month on their Netflix subscription.

Why’s that? 

In a note today, JPMorgan’s Imran Khan writes:

“We estimate that more than 30% of revenue is spent on DVD fulfillment as well as mailing costs. Further, much of the content expense for streaming is fixed, meaning the contribution profit of additional streaming users is likely to be quite high. Additionally, we think the company is offering a lower price on the streaming plan in order to incentivise users to opt for the higher-margin product.”

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