SAN FRANCISCO (AP) — Netflix is preparing a sequel
unlikely to be a hit with its subscribers. The Internet video service is
about to raise its prices for the first time in three years to help pay
for more Internet video programming such as its popular political drama
"House of Cards."
The increase, to take place sometime before
July, will hike prices by $1 or $2 per month for new customers. The
company’s nearly 36 million current subscribers will continue to pay $8
per month for at least the next year, Netflix CEO Reed Hastings said in a
Monday interview.
"When we look at the shows and movies that we
will be able to get if we have a bigger budget, it’s exciting," Hastings
told The Associated Press. "We want to make the service better and
better so more people will join."
Netflix announced the looming price increase as part of a solid first-quarter earnings report.
Financial
pressures have been mounting on Netflix as it grapples with the rising
costs of licensing compelling video for its service. The company has
been spending more to compete against traditional cable-TV channels such
as HBO and Showtime, as well as technology companies such as Amazon.com
Inc., Hulu.com, Microsoft Corp. and Yahoo Inc., which are planning to
buy more Internet video programming from Hollywood studios.
"I think they need to raise the price to remain profitable," Wedbush Securities analyst Michael
Pachter said of Netflix.
Amazon
recently raised the price of its Prime service, which includes an
expanding Internet video library, from $79 to $99 annually.
Investors
evidently like the prospect of Netflix bringing in more revenue.
Netflix’s stock surged $23.01, or 6.6 percent, to $371.50 in extended
trading after the company announced its plans.
Price increases
pose a risk for Netflix. The Los Gatos, Calif., company was stung by a
customer backlash in 2011, when it boosted rates by as much as 60
percent for U.S. customers who wanted to continue to subscribe to both
its Internet video and DVD-by-mail services.
Netflix lost about
800,000 subscribers after the 2011 pricing change was announced,
rattling investors so much that the company’s stock plunged more than 80
percent before starting to rebound in August 2012. The shares hit a new
peak of $458 last month before sliding amid investor concerns that some
technology stocks had soared too high, too quickly. Netflix’s market
value nearly quadrupled last year.
The upcoming price increase is
coming in a much different situation than the last one. Besides giving
current subscribers an extended grace period, Netflix has more firmly
established itself as the Internet’s equivalent of HBO with an expanding
slate of programming that can only be found on its service.
The
economy also is in better shape than three years ago, lessening the pain
to people’s pocketbooks, said S&P Capital IQ analyst Tuna Amobi.
"The
timing may not be as precarious as it was last time," Amobi said. "They
designed it to do the least amount of damage and protect themselves
with potential upside."
The company ended March with 35.7 million
Internet video subscribers in the U.S. after adding another 2.25 million
customers in the country during the first quarter. That’s up nearly 50
percent from 23.9 million U.S. subscribers in July 2012 while the
company was still trying to sooth customers irked by the last price
increase.
The company attracted another 1.75 million subscribers
in Canada and overseas, leaving it with 12.7 million international
customers.
Meanwhile, Netflix’s DVD-by-mail service is slowly
dying. Through March, Netflix had 6.7 million DVD customers, a 52
percent drop from 13.9 million just two years ago. Netflix isn’t
changing its DVD prices, despite rising postal costs.
Netflix’s
comeback has been propelled by the company’s increasing emphasis on
exclusive programming such as "House of Cards," an acclaimed series
starring Kevin Spacey as a cunning politician with a ruthless plan to
become President of the United States. Netflix released all 13 episodes
in "House of Cards’" second season on Feb. 14, midway through the first
quarter.
Another popular Netflix series, "Orange Is The New
Black," is returning with new episodes June 6, toward the final month of
the current quarter.
Even with "Orange Is The New Black," Netflix
is only expecting to attract 511,000 U.S. subscribers from April
through June before prices rise for new customers. That would be down
from an increase of 630,000 U.S. subscribers at the same time last year.
Netflix
Inc. earned $53 million, or 86 cents per share, during the first three
months of the year. That compared to $2.7 million, or 5 cents, last
year. The latest quarterly earnings exceeded the average estimate of 81
cents per share among analysts surveyed by FactSet.
Revenue rose 24 percent from last year to $1.3 billion to match analyst projections.
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