Netflix plans US$1 to US$2 price increase for new users

22 Apr 2014

Emboldened by the limited impact of an increase in price from €6.99 to €7.99 in Ireland, Netflix CEO Reed Hastings said the streaming-video company intends to implement a US$1 or US$2 price increase “depending on the country” later this quarter for new members.

In its first-quarter results, Netflix ended Q1 with more than 48m global members (an increase of 4m), and topped US$1bn in quarterly streaming revenue.

The company’s US streaming service grew by 2.25m net members to 35.7m members. International membership grew by 1.75m, bringing Netflix’s international total to 12.7m members with 72pc more net additions than prior year Q1.

In a letter to shareholders, Hastings confirmed plans to increase prices. “As expected, we saw limited impact from our January price increase for new members in Ireland (from €6.99 to €7.99), which included grandfathering all existing members at €6.99 for two years.

“In the US, we have greatly improved our content selection since we introduced our streaming plan in 2010 at US$7.99 per month. Our current view is to do a US$1 or US$2 increase, depending on the country, later this quarter for new members only.

“Existing members would stay at current pricing (eg, US$7.99 in the US) for a generous time period. These changes will enable us to acquire more content and deliver an even better streaming experience,” Hastings wrote.

The company said its original content strategy, which includes House of Cards and Orange Is The New Black, is gaining momentum. A Morgan Stanley survey showed that 17pc of respondents viewed Netflix as the service that offered the best original programming, second only to HBO.

“The huge competition amongst all of us for great writers and producers means there’s never been a more robust market for quality serialised television,” Hastings said.

He also said the company plans to steam ahead with 4K content. “As 4K TVs become less expensive and more accessible, we will increase our content available in 4K. The best quality consumer video in the world is now streaming internet video, less than 10 years after YouTube’s 2005 start.”

Long term threat to the internet

However, Hastings said the internet faces a long term threat from the largest ISPs driving up profits for themselves and costs for everyone else. The company secured a deal with Comcast during the quarter to ensure that proper streaming speeds and quality are sustained for its US users.

“If the Comcast and Time Warner Cable merger is approved, the combined company’s footprint will pass over 60pc of US broadband households, after the proposed divestiture, with most of those homes having Comcast as the only option for truly high-speed broadband (greater than 10Mbps).

“As DSL fades in favour of cable internet, Comcast could control high-speed broadband to the majority of American homes. Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix.

“The combined company would possess even more anticompetitive leverage to charge arbitrary interconnection tolls for access to their customers. For this reason, Netflix opposes this merger,” Hastings said.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years