Netflix raises cost of key plan 10%
The price of its most popular streaming option will rise to $11 a month from $10.
Netflix Inc. is raising the price for its most popular U.S. video streaming plan by 10% — a move aimed at bringing in more money to outbid HBO, Amazon.com and other rivals for addictive shows.
The change announced Thursday affects most of Netflix’s 53 million U.S. subscribers.
Netflix will soon begin charging $11 a month instead of $10 for a plan that includes high-definition video and allows subscribers to simultaneously watch programs on two internet-connected devices.
The price for a plan that includes ultra-high-definition, or 4K, video, will rise 17%, to $14 a month from $12. A plan that limits subscribers to one screen at a time without HD video will remain at $8 a month.
The increase would be the first in two years for the Los Gatos, Calif., company, although it won’t seem that way to millions of subscribers. That’s because Netflix temporarily froze its rates for longtime subscribers the last two times it raised its prices, delaying the most recent increases until the second half of last year for them.
Netflix isn’t giving anyone a break this time. It will start emailing notifications about the new prices to affected subscribers Oct. 19, giving them 30 days to accept the higher rates, switch to a cheaper plan or cancel the service.
Netflix is trying to fatten its profit margins as it spends more money to finance a critically acclaimed slate of original programming that includes shows such as “House of Cards,” “Orange Is the New Black,” “Stranger Things” and “The Crown.”
Their successes helped Netflix land more Emmy award nominations than any TV network besides HBO this year. It’s also the main reason Netflix’s U.S. audience has nearly doubled since the February 2013 debut of “House of Cards” kicked off its expansion into original programming.
But paying for exclusive TV series and films hasn’t been cheap. Netflix expects to spend $6 billion on programming this year, and the expenses are likely to rise as it competes against streaming rivals such as Amazon, Hulu, YouTube and, possibly, Apple for the rights to future shows and movies.
Amazon (at $99 a year, or about $8.25 a month) offers a lower price than the new price of Netflix’s most popular U.S. plan. Hulu’s monthly fee ranges from $8 for a plan with commercials to $11 for a commercial-free plan.
Netflix believes its price increase is justified by recent service improvements, such as a feature that allows people to download shows onto phones or other devices to watch them offline.
But Netflix subscribers have rebelled against price increases in the past, most notably in 2011 when the company stopped bundling its streaming service with its DVD-by-mail service, resulting in price increases of as much as 60% for customers who wanted both plans. Netflix lost 600,000 subscribers and its stock price plummeted 80%.
The company rebounded strongly, though, propelling its stock from a split-adjusted low of $7.54 in 2012 to $184.45 on Wednesday. On Thursday, shares jumped $9.94, or 5.4%, to $194.39 as investors reacted positively to the higher prices.
And Netflix blamed a temporary slowdown in subscriber growth last year on longtime customers who decided to drop the service rather than pay slightly more money when it lifted its price freeze.
Wedbush Securities analyst Michael Pachter believes less than 10% of current subscribers will cancel their Netflix accounts when prices rise again, but he predicts it will be tougher to attract new customers who could choose Amazon’s cheaper alternative.