Netflix plans to raise prices as U.S. streaming subscribers grow

LOS ANGELES Tue Apr 22, 2014 8:51am IST

The headquarters of Netflix is shown in Los Gatos, California in this file photo taken September 20, 2011. REUTERS/Robert Galbraith/Files

The headquarters of Netflix is shown in Los Gatos, California in this file photo taken September 20, 2011.

Credit: Reuters/Robert Galbraith/Files

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LOS ANGELES (Reuters) - Video streaming service Netflix Inc (NFLX.O) said it intends to raise its subscription price for new customers by $1 or $2 a month to help the company buy more movies and TV shows and improve service for its 48 million global subscribers.

Investors welcomed the announcement on Monday by Netflix, which had suffered from a consumer exodus and stock plunge after it announced an unpopular price increase in July 2011. The company's shares jumped 6.7 percent in after-hours trading to $371.97, after the company released plans for price hikes and posted a rise in first-quarter profit that beat Wall Street expectations.

Chief Executive Reed Hastings said Netflix had improved its selection of TV shows and movies and added original series like critically acclaimed Kevin Spacey thriller "House of Cards."

With added revenue from higher prices, "we will be able to license much more content and deliver it in very high quality video," Hastings said on a webcast.

The company, in a quarterly letter to shareholders, said it plans to impose "a one or two dollar increase, depending on the country, later this quarter for new members only."

Subscription fees will rise in each of the 41 countries where Netflix operates, Hastings said in an interview. Existing customers will keep their current price for one to two years, he said.

Netflix has "room to raise prices," FBN Securities analyst Shebly Seyrafi said, because "they're still seeing a lot of demand" for the service.

The company said in its earnings report it added 2.25 million customers to its U.S. streaming business during the quarter that ended in March, in line with the company's earlier guidance, for a total of 35.7 million. In international markets, its customer base reached 12.7 million, a gain of 1.8 million during the quarter.

Net income for the quarter reached $53 million, an increase from $3 million a year earlier. Earnings-per-share came in at 86 cents, topping the average forecast of 83 cents, according to analysts surveyed by Thomson Reuters I/B/E/S.

During the quarter, it released the second season of critically acclaimed Kevin Spacey drama "House of Cards."

Netflix is investing in original series, such as "House of Cards" and "Orange is the New Black" to attract and keep subscribers. If faces competition from online video players like Amazon.com Inc (AMZN.O) and Hulu, as well as on-demand content from cable operators.

Netflix also said it opposed Comcast Corp's (CMCSA.O) proposed purchase of Time Warner Cable Inc (TWX.N). In March, Netflix reluctantly agreed to pay "interconnection" fees to Comcast for faster delivery of its TV shows and movies.

"Comcast is already dominant enough to be able to capture unprecedented fees from transit providers and services such as Netflix," the company said in its letter. "The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers."

Netflix said those fees had improved Netflix service for Comcast customers, but singled out AT&T's fiber-based U-Verse as providing "lower performance" than many other providers.

Comcast responded in a statement that the Netflix opposition to the planned merger was "based on inaccurate claims and arguments." "There has been no company that has had a stronger commitment to openness of the Internet than Comcast," the company said.

(Reporting by Lisa Richine; Editing by Ronald Grover, Bernard Orr)

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