Net­flix tests lim­its of price hikes for orig­i­nal shows

Daily Freeman (Kingston, NY) - - BUSINESS - By Michael Liedtke AP Tech­nol­ogy Writer

Net­flix is test­ing the fi­nan­cial lim­its of its stream­ing video ser­vice as the ris­ing cost of pro­duc­ing orig­i­nal pro­gram­ming pushes up sub­scrip­tion prices.

The lat­est re­minder came Mon­day with the com­pany’s third-quar­ter earn­ings re­port, which re­vealed that Net­flix added 370,000 U.S. sub­scribers. That marks its sec­ond con­sec­u­tive quar­ter of slow­ing U.S. growth since lift­ing a two-year rate freeze and in­creas­ing prices by as much as 20 per­cent for more than 20 mil­lion ex­ist­ing sub­scribers.

While the lat­est quar­terly sub­scriber gain ex­ceeded man­age­ment’s mod­est pro­jec­tions, it fell far be­low the 880,000 U.S. cus­tomers that Net­flix picked up at the same time last year. The de­cel­er­a­tion oc­curred even though the lat­est pe­riod in­cluded the July de­but of “Stranger Things,” which turned into one of the sum­mer’s sur­prise hits.

Net­flix is now far­ing far bet­ter over­seas as it tries to di­ver­sify its video li­brary to suit the tastes of 189 other coun­tries.

The com­pany added 3.2 mil­lion in­ter­na­tional sub­scribers in the third quar­ter, sur­pass­ing the 2.7 mil­lion it gained at the same time last year when it was op­er­at­ing in about 130 fewer coun­tries.

In­vestors were thrilled with the in­ter­na­tional progress and the bet­ter-than-ex­pected show­ing in the U.S. Net­flix’s stock surged nearly 20 per­cent to $119.91 in ex­tended trad­ing.

The drop-off in U.S. sub­scriber gains un­der­scores the del­i­cate bal­anc­ing act the com­pany is try­ing to pull off as it seeks to re­tain and at­tract cus­tomers while also fi­nanc­ing its am­bi­tious ex­pan­sion over­seas amid fierce com­pe­ti­tion from Ama­zon and HBO.

It’s an ex­pen­sive chal­lenge, which is why Net­flix raised the price for its most pop­u­lar U.S. plan from $8 to $10 per month. And the pres­sure to con­tinue in­creas­ing rates ev­ery few years seems likely to con­tinue, though Net­flix CEO Reed Hast­ings said Mon­day that that there are no plans to raise prices again any­time soon.

On av­er­age, Net­flix said, it is col­lect­ing 10 per­cent more for its sub­scribers world­wide than a year ago. About 25 per­cent of the U.S. sub­scribers still cov­ered by the rate freeze im­posed in 2014 will have their prices raised by year’s end.

“With more rev­enue, we can rein­vest to fur­ther im­prove Net­flix to at­tract new mem­bers from around the world, while con­tin­u­ing to de­light our ex­ist­ing cus­tomers,” Hast­ings wrote in a let­ter re­view­ing the thirdquar­ter re­sults.

Af­ter spend­ing $5 bil­lion on orig­i­nal pro­gram­ing and li­cens­ing rights to other shows this year, Net­flix has ear­marked another $6 bil­lion for next year. Only Walt Dis­ney Co. and NBC are spend­ing more on pro­gram­ming, based on an anal­y­sis of 2015 data, ac­cord­ing to the re­search firm IHS Markit.

Net­flix ex­pects to of­fer 1,000 hours of orig­i­nal shows and movies next year, up from 600 hours this year.

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