Netflix poised to raise prices after strong Q1 to pay for programming
By Michael Liedtke, AP
April 23, 2014, 12:08 am TWN
SAN FRANCISCO--Netflix is preparing a sequel unlikely to be a hit with its subscribers. The Internet video service is about to raise its prices for the first time in three years to help pay for more Internet video programming such as its popular political drama “House of Cards.”
The increase, to take place sometime before July, will hike prices by US$1 or US$2 per month for new customers. The company's nearly 36 million current subscribers will continue to pay US$8 per month for at least the next year, Netflix CEO Reed Hastings said in a Monday interview.
“When we look at the shows and movies that we will be able to get if we have a bigger budget, it's exciting,” Hastings told The Associated Press. “We want to make the service better and better so more people will join.”
Netflix announced the looming price increase as part of a solid first-quarter earnings report.
Financial pressures have been mounting on Netflix as it grapples with the rising costs of licensing compelling video for its service. The company has been spending more to compete against traditional cable-TV channels such as HBO and Showtime, as well as technology companies such as Amazon.com Inc., Hulu.com, Microsoft Corp. and Yahoo Inc., which are planning to buy more Internet video programming from Hollywood studios.
“I think they need to raise the price to remain profitable,” Wedbush Securities analyst Michael Pachter said of Netflix.
Amazon recently raised the price of its Prime service, which includes an expanding Internet video library, from US$79 to US$99 annually.
Investors evidently like the prospect of Netflix bringing in more revenue. Netflix's stock surged US$23.01, or 6.6 percent, to US$371.50 in extended trading after the company announced its plans.
Price increases pose a risk for Netflix. The Los Gatos, California, company was stung by a customer backlash in 2011, when it boosted rates by as much as 60 percent for U.S. customers who wanted to continue to subscribe to both its Internet video and DVD-by-mail services.
Netflix lost about 800,000 subscribers after the 2011 pricing change was announced, rattling investors so much that the company's stock plunged more than 80 percent before starting to rebound in August 2012. The shares hit a new peak of US$458 last month before sliding amid investor concerns that some technology stocks had soared too high, too quickly. Netflix's market value nearly quadrupled last year.