Netflix has confirmed they will increase the price of their service by $1-2 for new members in Canada and the United States. This is the first price hike in three years and will go in effect sometime this quarter, most likely by June 30th.
The Netflix prices are being increased because the company says it has greatly improved their content selection since the streaming plan was introduced in 2010 which was offered at $7.99 US per month. This hike will help pay for more Internet video programming such as the popular “House of Cards” and “Orange is the New Black”, the exact improved content the Netflix spokespersons are talking about. Currently U.S. subscribers will continue to pay the $8 per month in what is being called a “generous time period”. This delayed price increase is most likely a strategic tactic to avoid what happened in 2011 when Netflix lost approximately 800,000 subscribers due to a fee increase.
How will the new Netflix prices affect their stock?
When Netflix increased its prices by almost 60% in 2011, investors panicked and pulled out there money causing the stock to plunge more than 80%. This time? So far, so good. Investors seem to like the delayed hike and the prospect of Netflix bringing in more revenue. The stock has surged over $24 today, a 7% increase from yesterdays end.
Netflix has been on a roll since the backlash subsided in August of 2012. They added 2.25 million Internet video subscribers in March bringing their total to 35.7 million U.S. customers. This is a 40% increase from their total in July 2012 when they were finally starting to win back some lost customers.
Netflix Facing Pressure Competitors
This announcement showcases some financial pressures the company is facing as it needs to spend more money on licencing captivating content. Amazon and Hulu have already started to pose legitimate threats to Netflix, while giants Microsoft and Yahoo are gearing up to make a splash in the market as they plan to buy Internet video programming from Hollywood Studios.
The United States’ second largest broadband provider and wireless company AT&T announced today they will also be dipping into the streaming business. They will be starting a $500 million joint venture with media and entertainment company the Chernin Group to launch a Netflix-style video streaming service. The Chernin Group will of course bring their valuable assets to this venture, assets which include a majority stake in Crunchyroll, a subscription video on demand service.