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Netflix poised to raise prices after strong 1Q

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Associated Press
Published:
SAN FRANCISCO — Netflix is preparing 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 $1 or $2 per month for new customers. The Los Gatos, Calif. company says current U.S. subscribers will continue to pay $8 per month for a “generous time period.”
The move announced Monday as part of Netflix’s first-quarter earnings report illustrates the financial pressures mounting on the company as its spends more money to license compelling content. The efforts are aimed at warding off competitive threats from Amazon.com Inc. and Hulu.com while Microsoft Corp. and Yahoo Inc. also are gearing up to buy Internet video programming from Hollywood studios.
Amazon recently raised the price of its Prime service, which includes an expanding Internet video library, from $79 to $99 annually.
Investors evidently like the prospect of Netflix bringing in more revenue. Netflix’s stock surged $22.12, or more than 6 percent, to $370.61 in extended trading after Netflix announced its plans.
Price increases are a risk for Netflix. The 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 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.
Netflix has been on a roll since the backlash subsided. The company added another 2.25 million Internet video subscribers during the first quarter to end March with 35.7 million U.S. customers. That’s up nearly 50 percent from 23.9 million U.S. subscribers in July 2012 while the company was still trying to sooth customers irked by the last price increase.
The company attracted another 1.75 million subscribers in Canada and overseas, leaving it with 12.7 million international customers.
Netflix’s comeback has been propelled by the company’s increasing emphasis on exclusive programming such as “House of Cards,” an acclaimed series starring Kevin Spacey as a cunning politician with a ruthless plan to become President of the United States. Netflix released all 13 episodes in “House of Cards”’ second season on Feb. 14, midway through the first quarter.
Another popular Netflix series, “Orange Is The New Black,” is returning with new episodes June 6, toward the final month of the current quarter.
Netflix CEO Reed Hastings said the company needs to charge higher prices so the Internet video service can afford to bid against its rivals for programming —and reach its long-term goal of 60 million to 90 million U.S. subscribers.
“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,” Hastings said in a question-and-answer session streamed in an Internet video.
Netflix Inc. earned $53 million, or 86 cents per share, during the first three months of the year. That compared to $2.7 million, or 5 cents, last year. The latest quarterly earnings exceeded the average estimate of 81 cents per share among analysts surveyed by FactSet.
Revenue rose 24 percent from last year to $1.3 billion to match analyst projections.
Story tags » Major CompaniesInternet & Cloud

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