Netflix to Take Another Shot at Raising Prices

/ Apr 21, 2014


Netflix prices are about to increase.

In the company’s Q1 2014 earnings report, CEO Reed Hastings and CFO David Wells said the company is planning “a one or two dollar increase,” depending on the country, later this quarter. Existing subscribers, the duo said, would stay at the current price “for a generous time period.” In Ireland, existing members were grandfathered for two years — so expect something similar in other markets, including the US.

The reason given for the increase? Simply, it would allow Netflix to invest more in its original productions as well as domestic and international exclusive licensing deals.

This move comes roughly three years after Netflix last tried to increase prices (and separate its streaming and DVD businesses), which ended in disaster and the company’s stock plummeting.

As you know by now, the stock price has come back around, largely because consumers seem to have forgotten the pricing debacle NetFlixand continue to sign up for the streaming service.

Netflix ended Q1 2014 with 48.35 million global subscribers, gaining almost exactly 4 million from the previous quarter, and over $1 billion in streaming revenue. Half of those net subscriber additions came in the US, up from 33.42 million in Q4 2013 to 35.67 million.

Content wise, original programming continues to play a huge role for Netflix, and will do so going forward. Season two of its political drama “House of Cards” was a “big hit,” with an audience that “would make any cable or broadcast network happy,” said Hastings and Wells in the shareholder letter. Though per company policy, the duo didn’t divulge exactly what that means in pure viewership numbers.

That said, following a huge marketing push for “House of Cards” season two, Netflix is planning a “significant push” for the coming installment of “Orange Is the New Black,” which debuts on June 6.

“Original series represent a tremendous opportunity to raise awareness of, and build consumer enthusiasm for, the Netflix brand,” said Hastings and Wells. “We’ll be investing more in marketing high-quality exclusive content, and spending less on direct response advertising such as banner ads touting free trials.”

netflix netherlandsAnother major area of focus? International, which grew to the tune of 1.75 million net new members (+72% year-over-year). As Netflix pursues the international market, with expansions into Continental Europe and other regions, the company expects international revenues to eventually surpass the US market. Right now, Netflix’s international business accounts for 25% of the total streaming revenue.

Last year was marked by several deals Netflix made with TV service providers in Europe to integrate the streaming service directly into set-tops, as well as chatter that Netflix was eyeing similar deals for the much more hesitant US cable market. That’s about to happen, as Hastings and Wells said that Netflix will “launch the first MVPD integrations in the US” in the coming quarter. Like the Europe deals, this will begin with MVPDs that use TiVo set-top boxes. The company hopes to expand that to non-TiVo devices “after that.”

Speaking of TV, though, Hastings and Co. officially put their foot in the ground on the proposed Comcast-Time Warner merger. Citing how the deal would give Comcast control of over 60% of the US broadband households, Hastings and Wells believe the merger would give Comcast unprecedented leverage in negotiations with Netflix over inter-connection fees. “The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers,” said Hastings and Wells. “For this reason, Netflix opposes this merger.”

Overall, though, things are good for Netflix. And just in case you forgot, even though Netflix faces increased competition from online video providers like Amazon, Hulu, Microsoft, AOL, and Yahoo (all companies directly referenced in the letter), the service believes its real competitors continue to be TV networks.

“We are approaching 50 million global members, but that is far short of HBO’s 130 million,” said Hastings and Wells. “We are eager to close the gap.”

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