Netflix wants to introduce three pricing tiers for new members

Netflix (S NFLX) is getting ready for a new pricing structure, according to the company’s Q4 letter to shareholders (PDF) released Wednesday. In it, CEO Reed Hastings and CFO David Wells write:

“Last April we introduced a 4-concurrent stream $11.99 option to begin our evaluation of plan tiering. Since late last year, we have also been testing 1-stream and 3-stream variants, as well as SD/HD variations, at various price points. Eventually, we hope to be able to offer new members a selection of three simple options to fit everyone’s taste.”

The duo added that existing members would get “generous grandfathering of their existing plans and prices,” and also stated that the company is in “no rush to implement such new member plans and (is) still researching the best way to proceed.”

Netflix CEO Reed Hastings

This would be the first significant pricing change since Netflix split up its DVD and streaming business in 2011, a move that was highly unpopular with existing members. The company introduced family-plan type pricing in early 2013, offering members the option to stream to two additional, or a total of four, devices at a time for an additional $4 per month.

Hastings didn’t reveal any concrete details about the company’s plans during Netflix’s Q4 earnings call Wednesday, but he said that his thinking on pricing had evolved. “We try to make our pricing as straight-forward as possible. But it’s not clear that one price fits all,” he said.

Hastings added that future pricing tiers won’t be content-specific, meaning that the company won’t offer more content to customers who pay more. Instead, it wants to figure out a kind of “good-better-best price tiering,” Hastings said, which will offer a variety of features, including possibly a varying number of simultaneous streams. The end goal was to find a three-tier offering “that feels fair,” he said.

A big question executives will eventually have to answer  is whether the new plans keep a base pricing of $8 per month for two simultaneous streams, or whether these new tiers could be used to effectively raise prices for new members who want to enjoy the same service levels as existing members. Netflix previously said that it will offer 4K streaming, something the company is about to introduce with the launch of the second season of its original drama House of Cards next month, to all members for no additional costs.

The announcement of the new pricing options came along with better-than-expected financial results for Netflix, which managed to add 2.33 million domestic subscribers as well as 1.74 million international subscribers in Q4 of 2013. A year before, the company added 2.05 million domestic subscribers and 1.81 million international subscribers. Altogether, Netflix now has 44 million subscribers worldwide, up from 33 million a year ago.

During Q4 of 2013, Netflix generated $1.175 billion in revenue, and a net income of $48 million, compared to $945 million in revenue and a net income of $8 million in Q4 of 2012.

The letter to shareholders also reiterated that Netflix plans a big expansion to Europe in 2014. Netflix hasn’t said yet where exactly it wants to go, but Germany and France are likely targets.

This post was updated at 2:24pm with comments from Netflix’s Q4 earnings call.