Netflix To Raise Prices
MIAMI (CBSMiami/AP) – If you’ve been thinking about signing up for Netflix you may want to do so sooner than later.
The Internet video service is about to raise its prices for the first time in three years. The increase, to take place sometime before July, will hike prices by $1 or $2 per month for new customers. The company’s nearly 36 million current subscribers will continue to pay $8 per month for at least the next year, according to Netflix CEO Reed Hastings. The price hike would be for the company’s streaming service, not their DVD rentals.
Netflix announced the looming price increase as part of a solid first-quarter earnings report.
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.
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 $79 to $99 annually.
Investors evidently like the prospect of Netflix bringing in more revenue. Netflix’s stock surged $23.01, or 6.6 percent, to $371.50 in extended trading after the company announced its plans.
Price increases pose a risk for Netflix. The Los Gatos, Calif., 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 $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.
The upcoming price increase is coming in a much different situation than the last one. Besides giving current subscribers an extended grace period, Netflix has more firmly established itself as the Internet’s equivalent of HBO with an expanding slate of programming that can only be found on its service.
The economy also is in better shape than three years ago, lessening the pain to people’s pocketbooks, said S&P Capital IQ analyst Tuna Amobi.
“The timing may not be as precarious as it was last time,” Amobi said. “They designed it to do the least amount of damage and protect themselves with potential upside.”
The company ended March with 35.7 million Internet video subscribers in the U.S. after adding another 2.25 million customers in the country during the first quarter. 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.
(TM and © Copyright 2014 CBS Radio Inc. and its relevant subsidiaries. CBS RADIO and EYE Logo TM and Copyright 2014 CBS Broadcasting Inc. Used under license. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)