Get Ready for a Netflix Price Hike

3 minute read

Netflix is planning to raise its prices, the company revealed in a quarterly earnings report today. The price hike, which the company says will amount to $1 or $2 per month, will take place sometime from April to June. The increase will only affect new members for now. Netflix says current members will be able to keep their current plans for one to two years.

The company is being rightly cautious in increasing subscription rates. Its 2011 attempt to generate more revenue by separating its DVD-by-mail and streaming services into separate businesses was disastrous for Netflix’s brand and its stock price. Since then the company has earned back credibility with customers by bankrolling a growing stable of original shows and inking licensing deals with big entertainment companies like Disney. But this content comes at a great cost — Netflix will spend almost $3 billion licensing shows and movies this year. The company needs both more subscribers and more revenue per subscriber to keep its business profitable as acquisition costs soar.

“If we want to continue to expand to do more great original content, more series, more movies, we have to eventually increase prices a little bit,” CEO Reed Hastings said in a video conference with analysts. “You’re talking about a dollar or two difference per month, so I don’t think that it’s a huge difference.”

The news of a price hike comes as Netflix continues to add new subscribers at a rapid pace. The company added 4 million new members in the first quarter of 2014, bringing its total subscriber base to more than 48 million globally. The additions were above Netflix’s guidance of 3.85 million new members for the quarter thanks to a surge in international subscriptions. Netflix generated $1.27 billion in revenue for the quarter, in line with analyst estimates. Net income was $53 million, topping $3 million in the first quarter of 2013. Earnings were 86¢ per share, beating analyst targets by 3¢.

Netflix also used its earnings report to formally oppose the planned merger between Time Warner Cable and Comcast that is currently under scrutiny from federal regulators. The online video service recently reached a deal to pay Comcast for a direct connection to its broadband network in order to ensure faster streaming speeds for its users. But the company has publicly complained that this type of paid-peering agreement is unfair and violates the principles of net neutrality (broadband providers feel different). Netflix fears a combined Comcast and Time Warner Cable, which would serve about 60% of U.S. broadband households, would be able to charge even more for such fees. “Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix,” the company wrote in a letter to shareholders. “The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers.”

The company continues to be coy in revealing precise viewership numbers for its expensive original shows, allowing only that Season 2 of House of Cards attracted “a huge audience that would make any cable or broadcast network happy,” according to Netflix’s shareholder letter. Chief content officer Ted Sarandos also confirmed that Orange Is the New Black remains the most popular original show on the streaming service.

Netflix stock jumped more than 6% in after-hours trading. It’s still down significantly from its all-time high of $458 in early March as part of an overall decline in the tech sector over the past month.

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